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Monetary policy and income inequality in a Schumpeterian economy with endogenous step size

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  • Lu, You-Xun
  • Hsu, Che-Chun
  • Lai, Ching-chong

Abstract

This letter analyzes the effects of monetary policy on economic growth and income inequality in a Schumpeterian model with heterogeneous households and endogenous step size. We find that a higher nominal interest rate decreases the arrival rate of innovation but increases the step size. Thus, increasing the nominal interest rate has an ambiguous effect on economic growth and income inequality. Under our calibrated values, although monetary policy may have a positive or an inverted-U effect on economic growth, the effect of monetary policy on income inequality remains positive over a wide range of the strength of the CIA constraint.

Suggested Citation

  • Lu, You-Xun & Hsu, Che-Chun & Lai, Ching-chong, 2022. "Monetary policy and income inequality in a Schumpeterian economy with endogenous step size," Economics Letters, Elsevier, vol. 213(C).
    • Handle: RePEc:eee:ecolet:v:213:y:2022:i:c:s0165176522000556
    DOI: 10.1016/j.econlet.2022.110373
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    Cited by:

    1. Tavares Garcia, Francisco & Cross, Jamie L., 2024. "The impact of monetary policy on income inequality: Does inflation targeting matter?," Finance Research Letters, Elsevier, vol. 61(C).
    2. Yu, Po-yang & Lai, Ching-Chong, 2022. "Endogenous innovation scale and patent policy in a monetary Schumpeterian growth model," MPRA Paper 115016, University Library of Munich, Germany.
    3. Lu, You-Xun, 2022. "Interactive effects of monetary policy and patent protection: The role of endogenous innovation size," Economic Modelling, Elsevier, vol. 113(C).
    4. Zhou, Yuwen & Tian, Lixin & Yang, Xiaoguang & Wan, Bingyue, 2024. "Robust green Schumpeterian endogenous growth model and spatial Kuznets curve," Energy Economics, Elsevier, vol. 133(C).
    5. You-Xun Lu & Ching-Chong Lai & Po-Yang Yu, 2024. "Effects of patent policy on growth and inequality: exogenous versus endogenous quality improvements," Journal of Economics, Springer, vol. 141(1), pages 1-28, January.
    6. Lu, You-Xun & Chen, Shi-kuan & Lai, Ching-chong, 2022. "Monetary Policy and Economic Growth in a Schumpeterian Model with Incumbents and Entrants," MPRA Paper 112177, University Library of Munich, Germany.

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    More about this item

    Keywords

    R&D; Monetary policy; Economic growth; Income inequality; Endogenous step size;
    All these keywords.

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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