Monetary policy and income inequality in a Schumpeterian economy with endogenous step size

You-Xun Lu, Che-Chun Hsu and Ching-chong Lai

Economics Letters, 2022, vol. 213, issue C

Abstract: This letter analyzes the effects of monetary policy on economic growth and income inequality in a Schumpeterian model with heterogeneous households and endogenous step size. We find that a higher nominal interest rate decreases the arrival rate of innovation but increases the step size. Thus, increasing the nominal interest rate has an ambiguous effect on economic growth and income inequality. Under our calibrated values, although monetary policy may have a positive or an inverted-U effect on economic growth, the effect of monetary policy on income inequality remains positive over a wide range of the strength of the CIA constraint.

Keywords: R&D; Monetary policy; Economic growth; Income inequality; Endogenous step size (search for similar items in EconPapers)
JEL-codes: D30 E41 O30 O40 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:213:y:2022:i:c:s0165176522000556

DOI: 10.1016/j.econlet.2022.110373

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