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Reallocation Effects of Monetary Policy

Daisuke Miyakawa, Koki Oikawa and Kozo Ueda

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: Responding to the increased attention on the distributional aspects of monetary policy, we investigate the reallocation among heterogeneous firms triggered by nominal growth. Japanese firm-level data show that large firms invest more in R&D and grow faster than small firms under higher inflation. We then construct a model that introduces nominal rigidity into R&D-driven endogenous growth with heterogeneous firms. The model shows that high nominal growth leads to an increase in the market share of innovative firms because menu-cost burdens are relatively heavier for less innovative firms. This reallocation effect yields a positive effect of monetary expansion on both real growth and welfare. The optimal nominal growth can be strictly positive even under nominal rigidity. Moreover, the presence of menu costs can improve welfare.

Pages: 50 pages
Date: 2018-08
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (9)

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https://www.rieti.go.jp/jp/publications/dp/18e056.pdf (application/pdf)

Related works:
Journal Article: REALLOCATION EFFECTS OF MONETARY POLICY (2022) Downloads
Working Paper: Reallocation effects of monetary policy (2020) Downloads
Working Paper: Reallocation Effects of Monetary Policy (2019) Downloads
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