R&D AND ECONOMIC GROWTH IN A CASH‐IN‐ADVANCE ECONOMY

Angus Chu and Guido Cozzi

International Economic Review, 2014, vol. 55, issue 2, 507-524

Abstract: R&D investment has well‐known liquidity problems, with potentially important consequences. In this study, we analyze the effects of monetary policy on economic growth and social welfare in a Schumpeterian growth model with cash‐in‐advance (CIA) constraints on R&D investment, consumption, and manufacturing. Our main results can be summarized as follows. Under the CIA constraints on R&D and consumption (the CIA constraint on manufacturing), an increase in the nominal interest rate decreases (increases) R&D and economic growth. We also analyze the optimality of Friedman rule and find that Friedman rule can be suboptimal due to a unique feature of the Schumpeterian model.

Date: 2014
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Citations: View citations in EconPapers (17)

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https://doi.org/10.1111/iere.12059

Related works:
Working Paper: R&D and Economic Growth in a Cash-in-Advance Economy (2013)
Working Paper: R&D and economic growth in a cash-in-advance economy (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:iecrev:v:55:y:2014:i:2:p:507-524

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