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Monetary policy and endogenous market structure in a Schumpeterian economy

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  • Chu, Angus C.
  • Ji, Lei

Abstract

In this note, we develop a monetary Schumpeterian growth model to explore the effects of monetary policy on endogenous market structure, economic growth and social welfare. We find that an increase in the nominal interest rate reduces the equilibrium number of firms. Although long-run economic growth is independent of the nominal interest rate due to a scale-invariant property of the model, a higher nominal interest rate leads to lower growth rates of innovation, output and consumption during the transition path. Taking into account transition dynamics, we find that social welfare is decreasing in the nominal interest rate; therefore, Friedman rule is socially optimal in this economy.

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File URL: http://mpra.ub.uni-muenchen.de/53339/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40467.

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Date of creation: Aug 2012
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Handle: RePEc:pra:mprapa:40467

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Keywords: monetary policy; economic growth; R&D; endogenous market structure;

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  1. Peretto, Pietro F., 1996. "Technological Change and Population Growth," Working Papers 96-28, Duke University, Department of Economics.
  2. Peretto, Pietro F., 1999. "Cost reduction, entry, and the interdependence of market structure and economic growth," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 173-195, February.
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  7. Pietro F. Peretto, 2005. "Corporata Taxes, Growth and Welfare in a Schumpeterian Economy," 2005 Meeting Papers 653, Society for Economic Dynamics.
  8. Peretto, Pietro F., 1995. "Sunk Costs, Market Structure, and Growth," Working Papers 95-34, Duke University, Department of Economics.
  9. Joonkyung Ha & Peter Howitt, 2007. "Accounting for Trends in Productivity and R&D: A Schumpeterian Critique of Semi-Endogenous Growth Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 733-774, 06.
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  13. Chu, Angus C. & Cozzi, Guido, 2012. "R&D and economic growth in a cash-in-advance economy," MPRA Paper 39778, University Library of Munich, Germany.
  14. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
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  17. Fisher, Mark E & Seater, John J, 1993. "Long-Run Neutrality and Superneutrality in an ARIMA Framework," American Economic Review, American Economic Association, vol. 83(3), pages 402-15, June.
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Cited by:
  1. Chien-Yu Huang & Juin-Jen Chang & Lei Ji, 2013. "Cash-In-Advance Constraint on R&D in a Schumpeterian Growth Model with an Endogenous Market Structure," IEAS Working Paper : academic research 13-A009, Institute of Economics, Academia Sinica, Taipei, Taiwan.

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