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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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    Keywords

    inflation; income inequality; economic growth; heterogeneity;
    All these keywords.

    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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