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Does monetary policy impact innovation? Evidence from Australian Administrative Data

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  • Majeed, Omer
  • Hambur, Jonathan
  • Breunig, Robert

Abstract

We examine whether monetary policy affects innovative activity and productivity in Australia. As a small open economy that primarily imports and adopts existing technology, research on Australia complements previous research on the United States. While contractionary policy reduces aggregate research and development spending, and in turn productivity, the effects appear more short-lived compared to the United States. When using survey measures of innovation that capture adoption, we find heterogenous responses. Small firms decrease innovation in response to contractionary monetary policy shocks, whereas large firms increase innovation. This heterogeneity may reflect differing exposures to the demand and financial constraint channels of monetary policy. United States monetary policy affects Australian firms’ innovation, at least in part by influencing global economic conditions.

Suggested Citation

  • Majeed, Omer & Hambur, Jonathan & Breunig, Robert, 2025. "Does monetary policy impact innovation? Evidence from Australian Administrative Data," Journal of Macroeconomics, Elsevier, vol. 86(C).
    • Handle: RePEc:eee:jmacro:v:86:y:2025:i:c:s0164070425000424
    DOI: 10.1016/j.jmacro.2025.103706
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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