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Innovation, Growth and Optimal Monetary Policy

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Abstract

This paper examines how the mechanism driving growth in the economy is likely to affect the optimal monetary policy response to shocks. We consider the Ramsey policy in a New Keynesian model in which growth is sustained by the creation of new patented technologies through R&D and we compare the results obtained with those arising when growth is exogenous. We find that optimal monetary policy must be counter-cyclical in face of both technology and public spending shocks, but the intensity of the reaction crucially depends on the underlying growth mechanism.

Suggested Citation

  • Barbara Annicchiarico & Alessandra Pelloni, 2016. "Innovation, Growth and Optimal Monetary Policy," CEIS Research Paper 376, Tor Vergata University, CEIS, revised 01 Apr 2016.
  • Handle: RePEc:rtv:ceisrp:376
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    References listed on IDEAS

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    Cited by:

    1. Marcin Bielecki, 2017. "Business cycles, innovation and growth: welfare analysis," Working Papers 2017-19, Faculty of Economic Sciences, University of Warsaw.

    More about this item

    Keywords

    Endogenous Growth; R&D; Optimal Monetary Policy; Ramsey Problem;

    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
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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