Chu, Angus C. and Cozzi, Guido and Furukawa, Yuichi (2013): Inflation, Unemployment and Economic Growth in a Schumpeterian Economy.
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Abstract
This study analyzes the effects of inflation on the long-run nexus between unemployment and economic growth. We introduce money demand via a cash-in-advance (CIA) constraint on R&D investment into a scale-invariant Schumpeterian growth model with matching frictions in the labor market. Given the CIA constraint on R&D, a higher inflation that raises the opportunity cost of cash holdings leads to a decrease in innovation and economic growth, which in turn decreases labor-market tightness and increases unemployment. In summary, the model predicts a positive relationship between inflation and unemployment, a negative relationship between inflation and R&D, and a negative relationship between inflation and economic growth. These theoretical predictions are consistent with recent empirical evidence. Therefore, when inflation is a fundamental variable that affects the economy, unemployment and economic growth exhibit a negative relationship.
Item Type: | MPRA Paper |
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Original Title: | Inflation, Unemployment and Economic Growth in a Schumpeterian Economy |
Language: | English |
Keywords: | inflation; unemployment; innovation; economic growth. |
Subjects: | E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity |
Item ID: | 50510 |
Depositing User: | Prof. Angus C. Chu |
Date Deposited: | 09 Oct 2013 06:44 |
Last Modified: | 26 Sep 2019 13:40 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/50510 |
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