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Innovation and Inequality in a Monetary Schumpeterian Model with Heterogeneous Households and Firms

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  • Chu, Angus C.
  • Cozzi, Guido
  • Fan, Haichao
  • Furukawa, Yuichi
  • Liao, Chih-Hsing

Abstract

This study develops a Schumpeterian growth model with heterogeneous households and heterogeneous firms to explore the effects of monetary policy on innovation and income inequality. Household heterogeneity arises from an unequal distribution of wealth. Firm heterogeneity arises from random quality improvements and a cost of entry. We find that under endogenous firm entry, inflation has inverted-U effects on economic growth and income inequality. We also calibrate the model for a quantitative analysis and find that the model is able to match the growth-maximizing inflation rate and the inequality-maximizing inflation rate that we estimate using cross-country panel data.

Suggested Citation

  • Chu, Angus C. & Cozzi, Guido & Fan, Haichao & Furukawa, Yuichi & Liao, Chih-Hsing, 2018. "Innovation and Inequality in a Monetary Schumpeterian Model with Heterogeneous Households and Firms," MPRA Paper 84711, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:84711
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    1. repec:eee:ecolet:v:171:y:2018:i:c:p:14-18 is not listed on IDEAS
    2. repec:eee:reveco:v:58:y:2018:i:c:p:113-126 is not listed on IDEAS
    3. He, Qichun, 2018. "Inflation and Fertility in a Schumpeterian Growth Model: Theory and Evidence," MPRA Paper 85074, University Library of Munich, Germany.
    4. He, Qichun, 2018. "Health and Innovation in a Monetary Schumpeterian Growth Model," MPRA Paper 85218, University Library of Munich, Germany.
    5. Qichun He & Heng-fu Zou, 2018. "Central Bank Independence and Inflation: Schumpeterian Theory and Evidence," CEMA Working Papers 606, China Economics and Management Academy, Central University of Finance and Economics.
    6. repec:eee:ecmode:v:75:y:2018:i:c:p:159-168 is not listed on IDEAS

    More about this item

    Keywords

    inflation; income inequality; economic growth; heterogeneity;

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • 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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