Do Monetary Policy and Economic Conditions Impact Innovation? Evidence from Australian Administrative Data

Omer Majeed, Jonathan Hambur and Robert Breunig

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper examines whether monetary policy and economic conditions affect innovative activity and productivity in Australia, a small open economy that tends to import innovation from overseas. Most interestingly, United States monetary policy spills over and affects Australian firms’ innovation. Within Australia, contractionary monetary policy reduces aggregate R&D spending and this leads to reduced productivity growth. However, using firm-level data and a survey measure of innovation that also captures adoption, we find heterogenous responses across different firm types. Small firms decrease innovation in response to contractionary monetary policy shocks whereas large firms increase innovation. This heterogeneity appears to reflect differing exposures to the demand and financial constraint channels of monetary policy. Overall, our results suggest that monetary policy and economic conditions have medium-run effects on productivity, though the effects are more heterogeneous than previously documented.

Keywords: innovation; monetary policy; firm-level data (search for similar items in EconPapers)
JEL-codes: E32 E52 G32 O30 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2024-02
New Economics Papers: this item is included in nep-mon, nep-sbm and nep-tid
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Working Paper: Do Monetary Policy and Economic Conditions Impact Innovation? Evidence from Australian Administrative Data (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2024-13

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