 Persistent slumps: Innovation and the credit channel of monetary policyElton Beqiraj, Qingqing Cao, Raoul Minetti and Giulio Tarquini European Economic Review, 2025, vol. 172, issue C Abstract: Monetary policy is increasingly found to exert long-run effects on the aggregate economy. We investigate the long-term effects of monetary policy through the credit channel. We develop a dynamic general equilibrium model with financial intermediaries and endogenous innovation in which credit frictions constrain firms’ investment and R&D expenses. Following an adverse monetary shock, the tightening of credit conditions for the innovation sector generates sizeable long-term effects, turning the shock into a persistent stagnation. We quantify the contribution of this transmission channel to productivity and output hysteresis. We then characterize the monetary policy trade-offs between short- and long-term targets, showing that the control of inflation can entail a growth slowdown. The results are consistent with Bayesian VAR estimates of the responses of credit and innovation aggregates to monetary shocks. Keywords: Monetary policy; Business cycles; R&D; Stagnation; Credit (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:eecrev:v:172:y:2025:i:c:s0014292124002757 DOI: 10.1016/j.euroecorev.2024.104946 Access Statistics for this article European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer More articles in European Economic Review from Elsevier |
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