Angus C., Chu and Lei, Ji (2012): Monetary policy and endogenous market structure in a schumpeterian economy.
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In this study, we develop a monetary Schumpeterian growth model with endogenous market structure (EMS) to explore the effects of monetary policy on the number of firms, �firm size, economic growth and social welfare. EMS leads to richer implications and different results from previous studies in which market structure is exogenous. In the short run, a higher nominal interest rate leads to lower growth rates of innovation, output and consumption and also smaller �rm size due to a reduction in labor supply. In the long run, an increase in the nominal interest rate reduces the equilibrium number of �firms but has no effect on economic growth and fi�rm size because of a scale-invariant property of the model as a result of entry and exit of fi�rms. Although monetary policy has no long-run effect on economic growth, an increase in the nominal interest rate permanently reduces the levels of output, consumption and employment. Taking into account transition dynamics, we �nd that social welfare is decreasing in the nominal interest rate. Given that a zero nominal interest rate maximizes welfare, Friedman rule is optimal in this economy.
|Item Type:||MPRA Paper|
|Original Title:||Monetary policy and endogenous market structure in a schumpeterian economy|
|Keywords:||monetary policy, economic growth, R&D, endogenous market structure|
|Subjects:||O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development; Intellectual Property Rights > O30 - General
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money
|Depositing User:||Lei (Jane) Ji|
|Date Deposited:||04. Sep 2012 16:04|
|Last Modified:||12. Feb 2013 22:54|
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