Angus C., Chu and Lei, Ji (2012): Monetary policy and endogenous market structure in a schumpeterian economy.
Download (174kB) | Preview
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|
 Aghion, P., and Howitt, P., 2005. Growth with quality-improving innovations: An integrated framework. In P. Aghion and S. Durlauf (eds.), Handbook of Economic Growth, Amsterdam: North-Holland, pp. 67-110.
 Chu, A., and Cozzi, G., 2012. R&D and economic growth in a cash-in-advance economy. MPRA Paper No. 39778.
 Chu, A., and Lai, C., 2012. Money and the welfare cost of in�ation in an R&D growth model. Journal of Money, Credit and Banking, forthcoming.
 Chu, A., Lai, C., and Liao, C., 2012. A tale of two growth engines: Interactive effects of monetary policy and intellectual property rights. MPRA Paper No. 40372.
 Cohen, W., and Klepper, S., 1996a. Firm size and the nature of innovation within industries: The case of process and product R&D. Review of Economics and Statistics, 78, 232-243.
 Cohen, W., and Klepper, S., 1996b. A reprise of size and R&D. Economic Journal, 106, 925-951.
 Dotsey, M., and Ireland, P., 1996. The welfare cost of in�ation in general equilibrium. Journal of Monetary Economics, 37, 29-47.
 Etro, F., 2009. Endogenous Market Structures and the Macroeconomy. New York and Berlin: Springer.
 Evers, M., Niemann, S., and Schiffbauer, M., 2007. In�ation, investment composition and total factor productivity. University of Essex, Economics Discussion Papers No. 632.
 Fisher, M., and Seater, J., 1993. Long-run neutrality and superneutrality in an ARIMA framework. American Economic Review, 83, 402-415.
 Funk, P., and Kromen, B., 2010. In�ation and innovation-driven growth. The B.E. Journal of Macroeconomics (Topics), 10, Article 23.
 Gillman, M., and Kejak, M., 2005. Contrasting models of the effect of in�ation on growth. Journal of Economic Surveys, 19, 113-136.
 Gomme, P., 1993. Money and growth revisited: Measuring the costs of in�ation in an endogenous growth model. Journal of Monetary Economics, 32, 51-77.
 Ha, J., and Howitt, P., 2007. Accounting for trends in productivity and R&D: A Schumpeterian critique of semi endogenous growth theory. Journal of Money, Credit and Banking, 39, 733-774.
 Howitt, P., 1999. Steady endogenous growth with population and R&D inputs growing. Journal of Political Economy, 107, 715-730.
 Jones, C., 1999. Growth: With or without scale e¤ects. American Economic Review, 89, 139-144.
 Laincz, C., and Peretto, P., 2006. Scale effects in endogenous growth theory: An error of aggregation not speci�cation. Journal of Economic Growth, 11, 263-288.
 Marquis, M., and Reffett, K., 1994. New technology spillovers into the payment system. Economic Journal, 104, 1123-1138.
 Mino, K., 1997. Long-run e¤ects of monetary expansion in a two-sector model of endogenous growth. Journal of Macroeconomics, 19, 635-655.
 Mulligan, C., and Sala-i-Martin, X., 1997. The optimum quantity of money: Theory and evidence. Journal of Money, Credit, and Banking, 29, 687-715.
 Peretto, P., 1996. Sunk costs, market structure, and growth. International Economic Review, 37, 895-923.
 Peretto, P., 1998. Technological change and population growth. Journal of Economic Growth, 3, 283-311.
 Peretto, P., 1999. Cost reduction, entry, and the interdependence of market structure and economic growth. Journal of Monetary Economics, 43, 173-195.
 Peretto, P., 2007. Corporate taxes, growth and welfare in a Schumpeterian economy. Journal of Economic Theory, 137, 353-382.
 Peretto, P., and Seater, J., 2011. Factor-eliminating technological change. manuscript.
 Santomero, A., and Seater, J., 1996. Alternative monies and the demand for media of exchange. Journal of Money, Credit and Banking, 28, 942-960.
 Segerstrom, P., 2000. The long-run growth effects of R&D subsidies. Journal of Economic Growth, 5, 277-305
 Stockman, A., 1981. Anticipated in�ation and the capital stock in a cash-in-advance economy. Journal of Monetary Economics, 8, 387-93.
 Tobin, J., 1965. Money and economic growth. Econometrica, 33, 671-684.
 Wang, P., and Yip, C., 1992. Alternative approaches to money and growth. Journal of Money, Credit and Banking, 24, 553-562.
 Wu, Y., and Zhang, J., 2001. The effects of in�ation on the number of �firms and fi�rm size. Journal of Money, Credit and Banking, 33, 251-271.
 Young, A., 1998. Growth without scale effects. Journal of Political Economy, 106, 41-63.