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Reallocation Effects of Monetary Policy

Author

Listed:
  • Daisuke Miyakawa
  • Koki Oikawa
  • Kozo Ueda

Abstract

Responding to the increased attention on the distributional aspects of monetary policy, we investigate the reallocation among heterogeneous firms triggered by nominal growth. Japanese firm-level data show that large firms invest more in R&D and grow faster than small firms under higher inflation. We then construct a model that introduces nominal rigidity into R&D-driven endogenous growth with heterogeneous firms. The model shows that high nominal growth leads to an increase in the market share of innovative firms because menu-cost burdens are relatively heavier for less innovative firms. This reallocation effect yields a positive effect of monetary expansion on both real growth and welfare. The optimal nominal growth can be strictly positive even under nominal rigidity. Moreover, the presence of menu costs can improve welfare.

Suggested Citation

  • Daisuke Miyakawa & Koki Oikawa & Kozo Ueda, 2020. "Reallocation Effects of Monetary Policy," CAMA Working Papers 2020-59, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2020-59
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-01/59_2020_miyakawa_oikawa_ueda.pdf
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    Cited by:

    1. Matthias Meier & Timo Reinelt, 2024. "Monetary Policy, Markup Dispersion, and Aggregate TFP," The Review of Economics and Statistics, MIT Press, vol. 106(4), pages 1012-1027, July.
    2. Dudley Cooke & Tatiana Damjanovic, 2026. "Monetary Policy and Welfare with Heterogeneous Firms and Endogenous Entry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 58(1), pages 79-109, February.
    3. Hartwig, Benny & Lieberknecht, Philipp, 2020. "Monetary policy, firm exit and productivity," Discussion Papers 61/2020, Deutsche Bundesbank.
    4. Yuichi FURUKAWA & Sumiko NIWA, 2021. "Deflation and Declining Business Dynamism in a Cash-in-Advance Economy," Discussion papers 21058, Research Institute of Economy, Trade and Industry (RIETI).
    5. Hamano, Masashige & Zanetti, Francesco, 2022. "Monetary policy, firm heterogeneity, and product variety," European Economic Review, Elsevier, vol. 144(C).
    6. Daisuke Miyakawa & Koki Oikawa & Kozo Ueda, 2022. "Reallocation Effects Of Monetary Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(2), pages 947-975, May.
    7. He, Qichun & Wang, Xilin, 2024. "Endogenous human capital and market structure in a monetary Schumpeterian model," Economic Modelling, Elsevier, vol. 141(C).
    8. Angus C. Chu, 2022. "Inflation, innovation, and growth: A survey," Bulletin of Economic Research, Wiley Blackwell, vol. 74(3), pages 863-878, July.
    9. Donato Masciandaro & Francesco Passarelli, 2020. "Populism, Political Pressure and Central Bank (in)Dependence," Open Economies Review, Springer, vol. 31(3), pages 691-705, July.

    More about this item

    Keywords

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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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