 Inflation and income inequality in an open-economy growth model with liquidity constraints on R&DRuiyang Hu, Jian Wang, Yibai Yang and Zhijie Zheng Journal of International Money and Finance, 2024, vol. 147, issue C Abstract: This study presents a framework to understand the relationship between inflation and income inequality in an open-economy Schumpeterian growth model with heterogeneous households, firm-level innovation, and cash-in-advance constraints on R&D investment. We show that the global real interest rate channel can play a key role in defining this relationship. In smaller economies that have negligible impacts on the global interest rate, income inequality is likely to exacerbate as inflation rates rise. In contrast, for larger economies that can significantly affect the global interest rate, inflation and income inequality may demonstrate a U-shaped relationship. These theoretical predictions are supported by the quantitative analysis in a model calibrated to the economies of the US and the eurozone, as well as empirical estimates using cross-country data. Keywords: Income inequality; Inflation; Open economy; R&D; Financial constraints (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:147:y:2024:i:c:s0261560624001141 DOI: 10.1016/j.jimonfin.2024.103127 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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