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International R&D Spillovers and Asset Prices

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  • Ana Maria Santacreu

    (Federal Reserve Bank of Saint Louis and INSEAD)

  • Federico Gavazzoni

    (INSEAD)

Abstract

We document that international R&D spillovers through trade in varieties is a major driver of asset prices. We find that country pairs that share more R&D have more correlated stock market returns and less volatile exchange rates. Moreover, we show that countries that depend more heavily on their trading partner's R&D have currencies that tend to pay a positive excess return. We develop an endogenous growth model of innovation and international technology diffusion that rationalizes our empirical findings. A calibrated version of our model matches several important asset pricing and quantity moments, thus alleviating several of the classic quantity-price puzzles of the international macroeconomic literature.

Suggested Citation

  • Ana Maria Santacreu & Federico Gavazzoni, 2015. "International R&D Spillovers and Asset Prices," 2015 Meeting Papers 405, Society for Economic Dynamics.
  • Handle: RePEc:red:sed015:405
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    Cited by:

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    3. Chen, Shiu-Sheng, 2017. "Exchange rate undervaluation and R&D activity," Journal of International Money and Finance, Elsevier, vol. 72(C), pages 148-160.
    4. Grüning, Patrick, 2018. "Heterogeneity in the internationalization of R&D: Implications for anomalies in finance and macroeconomics," Finance Research Letters, Elsevier, vol. 26(C), pages 132-138.
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    6. Curatola, Giuliano & Donadelli, Michael & Grüning, Patrick, 2017. "Technology trade with asymmetric tax regimes and heterogeneous labor markets: Implications for macro quantities and asset prices," SAFE Working Paper Series 163, Leibniz Institute for Financial Research SAFE.
    7. Chien, YiLi & Lustig, Hanno & Naknoi, Kanda, 2020. "Why are exchange rates so smooth? A household finance explanation," Journal of Monetary Economics, Elsevier, vol. 112(C), pages 129-144.
    8. Donadelli, Michael & Grüning, Patrick, 2021. "Innovation dynamics and fiscal policy: Implications for growth, asset prices, and welfare," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    9. Patrick Grüning & Justina Banionienė & Lina Dagilienė & Michael Donadelli & Marcus Jüppner & Renatas Kizys & Kai Lessmann, 2021. "The Quadrilemma of a Small Open Circular Economy Through a Prism of the 9R Strategies," Bank of Lithuania Working Paper Series 96, Bank of Lithuania.
    10. Kanda Naknoi & Hanno Lustig & YiLi Chien, 2017. "Why Are Exchange Rates So Smooth? A Heterogeneous Portfolio Explanation," 2017 Meeting Papers 214, Society for Economic Dynamics.
    11. Croce, Mariano Massimiliano & Nguyen, Thiên Tung & Raymond, Steve & Schmid, Lukas, 2018. "Government Debt and the Returns to Innovation," CEPR Discussion Papers 12617, C.E.P.R. Discussion Papers.

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    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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