Chu, Angus C. and Cozzi, Guido and Lai, Ching-Chong and Liao, Chih-Hsing (2013): Inflation, R&D and Growth in an Open Economy.
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Abstract
This study explores the long-run effects of inflation in a two-country Schumpeterian growth model with cash-in-advance constraints on consumption and R&D investment. We find that increasing domestic inflation reduces domestic R&D investment and the growth rate of domestic technology. Given that economic growth in a country depends on both domestic and foreign technologies, increasing foreign inflation also affects the domestic economy. When each government conducts its monetary policy unilaterally to maximize the welfare of domestic households, the Nash-equilibrium inflation rates are generally higher than the optimal inflation rates chosen by cooperative governments who maximize the welfare of both domestic and foreign households. Under the CIA constraint on R&D (consumption), a larger market power of firms amplifies (mitigates) this inflationary bias. We use cross-country panel data to estimate the effects of inflation on R&D and also calibrate the two-country model to data in the Euro Area and the US to quantify the welfare effects of decreasing the inflation rates from the Nash equilibrium to the optimal level.
Item Type: | MPRA Paper |
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Original Title: | Inflation, R&D and Growth in an Open Economy |
Language: | English |
Keywords: | inflation, economic growth, R&D, trade in intermediate goods |
Subjects: | E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O30 - General O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General |
Item ID: | 60326 |
Depositing User: | Prof. Angus C. Chu |
Date Deposited: | 01 Dec 2014 04:50 |
Last Modified: | 27 Sep 2019 22:52 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/60326 |
Available Versions of this Item
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Monetary Policy, R&D and Economic Growth in an Open Economy. (deposited 04 Jun 2013 13:31)
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Monetary Policy, R&D and Economic Growth in an Open Economy. (deposited 06 Oct 2013 12:23)
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Inflation, R&D and Economic Growth in an Open Economy. (deposited 26 Jan 2014 22:21)
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Inflation, R&D and Growth in an Open Economy. (deposited 29 Aug 2014 07:51)
- Inflation, R&D and Growth in an Open Economy. (deposited 01 Dec 2014 04:50) [Currently Displayed]
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Inflation, R&D and Growth in an Open Economy. (deposited 29 Aug 2014 07:51)
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Inflation, R&D and Economic Growth in an Open Economy. (deposited 26 Jan 2014 22:21)
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Monetary Policy, R&D and Economic Growth in an Open Economy. (deposited 06 Oct 2013 12:23)