R&D and economic growth in a cash-in-advance economy
Journal
International Economic Review
ISSN
0020-6598
ISSN-Digital
1468-2354
Type
journal article
Date Issued
2014-05
Author(s)
Abstract
R&D investment has well-known liquidity problems, with potentially important consequences. In this study, we analyze the effects of monetary policy on economic growth and social welfare in a Schumpeterian growth model with cash-in-advance (CIA) constraints on R&D investment, consumption, and manufacturing. Our main results can be summarized as follows. Under the CIA constraints on R&D and consumption (the CIA constraint on manufacturing), an increase in the nominal interest rate decreases (increases) R&D and economic growth. We also analyze the optimality of Friedman rule and find that Friedman rule can be suboptimal due to a unique feature of the Schumpeterian model.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Economic Policy
Refereed
Yes
Publisher
JSTOR
Publisher place
New York, NY
Volume
55
Number
2
Start page
507
End page
524
Pages
18
Subject(s)
Eprints ID
234829