Updating the technological base of the economy and real interest rates

Victor Dementiev

Journal of the New Economic Association, 2023, vol. 60, issue 3, 104-119

Abstract: The article substantiates that the impact of real interest rates on the economy depends on what stage of technological development it is at. A conceptual model of technological changes is proposed, it allows using borrowed capital as a means of accelerated renewal of the technological base of production. The main statements are explained with calculations based on this discrete model, in which successive phases of technological development of the economic system are highlighted. At the stage of active development of new general purpose technologies, increased investment in these technologies can be combined with an increase in interest rates. Attention is drawn to the fact that the policy of low interest rates is not able to compensate for the exhaustion of the possibilities of old general purpose technologies, when the new ones do not yet provide a radical renewal of the technological base of production. The trajectories obtained from the model calculations are compared with the evolution of the real interest rate and the share of private non-residential investments in the US GDP in the period 1961-2021. The dynamics of the indicators under consideration shows that when structural shifts in production are on the agenda, a differentiated approach to individual parts of the economy is required as part of economic policy.

Keywords: monetary policy; technological development; investments; real interest rate; research and development; IS-LM model (search for similar items in EconPapers)
JEL-codes: E43 E52 E66 O23 O41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:nea:journl:y:2023:i:60:p:104-119

DOI: 10.31737/22212264_2023_3_104-119

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