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Long-Run Monetary Non-Neutrality in a Model of Endogenous Growth

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  • Martin Zagler

    ()
    (Department of Economics, Vienna University of Economics & B.A.)

Abstract

Empirical Analysis, indicating a negative tradeoff between long-run growth and economic stability appear sensitive with respect to policy intervention. I use a model of fully rational utility maximizing representative agents and profit maximizing firms acquiring rents by inventing a new product variety on which they have market power in a monopolistically competitive goods market. Monopolistic competition has been used in three contexts in modern economics: trade, growth and New Keynesianism. I shall use the latter two, together with a small menu cost argument enabling nominal price rigidity on the goods market, to show that monetary policy can stabilize the economy closer to potential output than laissez-faire in the short run, thereby inducing faster innovation driven endogenous growth in the long run. Whilst the effect of fiscal policy on growth and the effect of monetary policy on levels is not new to endogenous growth and New Keynesian models, respectively, the result of a growth effect of monetary policy, which the model describes, is genuine.

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Bibliographic Info

Paper provided by Vienna University of Economics, Department of Economics in its series Department of Economics Working Papers with number wuwp037.

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Date of creation: Jun 1996
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Handle: RePEc:wiw:wiwwuw:wuwp037

Note: Zipped postscript Document
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Postal: Welthandelsplatz 1, 1020 Vienna, Austria
Web page: http://www.wu.ac.at/economics/en

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Cited by:
  1. Özlem Onaran, 2007. "International financial markets and fragility in the Eastern Europe: "can it happen" here?," Department of Economics Working Papers wuwp108, Vienna University of Economics, Department of Economics.
  2. Gerlinde Fellner & Matthias Sutter, 2008. "Causes, consequences, and cures of myopic loss aversion - An experimental investigation," Jena Economic Research Papers 2008-004, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Theresa Grafeneder-Weissteiner & Klaus Prettner, 2009. "Agglomeration and population ageing in a two region model of exogenous growth," Working Papers 0901, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
  4. Aleksandra Riedl & Silvia Rocha-Akis, 2008. "Testing the tax competition theory: How elastic are national tax bases in Western Europe?," Working Papers 142, Oesterreichische Nationalbank (Austrian Central Bank).
  5. Engelbert Stockhammer & Paul Ramskogler, 2008. "Post Keynesian economics - how to move forward," Department of Economics Working Papers wuwp124, Vienna University of Economics, Department of Economics.
  6. Helene Schuberth & Gert Wehinger, 1998. "Costs of European Monetary Union: Evidence of monetary and fiscal policy effectiveness," ERSA conference papers ersa98p459, European Regional Science Association.
  7. Theresa Grafeneder-Weissteiner, 2010. "Demographic change, growth and agglomeration," Department of Economics Working Papers wuwp132, Vienna University of Economics, Department of Economics.
  8. Engelbert Stockhammer & Paul Ramskogler, 2007. "Uncertainty and exploitation in history," Department of Economics Working Papers wuwp104, Vienna University of Economics, Department of Economics.
  9. Pasquale Commendatore & Ingrid Kubin & Carmelo Petraglia, 2007. "Footloose capital and productive public services," Department of Economics Working Papers wuwp111, Vienna University of Economics, Department of Economics.
  10. Annemarie Steidl & Engelbert Stockhammer, 2007. "Coming and leaving. Internal mobility in late Imperial Austria," Department of Economics Working Papers wuwp107, Vienna University of Economics, Department of Economics.

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