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A Tale of Two Growth Engines: Interactive Effects of Monetary Policy and Intellectual Property Rights

Chu, Angus C. and Lai, Ching-Chong and Liao, Chih-Hsing (2010): A Tale of Two Growth Engines: Interactive Effects of Monetary Policy and Intellectual Property Rights. Forthcoming in: Journal of Money, Credit and Banking

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Abstract

How do intellectual property rights that determine the market power of firms influence the effects of monetary policy? In a hybrid endogenous growth model in which R&D and capital accumulation are both engines of long-run economic growth, we find that monetary expansion hurts economic growth and social welfare by reducing R&D and capital accumulation. Furthermore, a larger market power of firms strengthens (weakens) these effects through the R&D (capital-accumulation) channel. Finally, we calibrate the model using data in the US and Euro Area to simulate the welfare cost of inflation and find that the R&D channel dominates in both economies.

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