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Cash in advance constraint on RD in a Schimpeterian growth model with an endogenous market structure

Chienyu Huang, Juin-jen Chang and Lei Ji
Additional contact information
Chienyu Huang: Southwestern University of Finance and economics
Lei Ji: Ofce sciences-po,skema Business School

No 2013-16, Documents de Travail de l'OFCE from Observatoire Francais des Conjonctures Economiques (OFCE)

Abstract: In this paper we explore the effects of monetary policy on the number of firms, firm market size, inflation and growth in a Schumpeterian growth model with endogenous market structure and cash-in-advance CIA constraints on two distinct types of RD investment in-house RD and entry investment. This allows us to match the empirical evidence and provides novel implications to the literature. We show that if in-house RD (quality improvement-type R&D) is subject to the CIA constraint, raising the nominal interest rate increases the number of firms and inflation, but decreases the firm size and economic growth. By contrast, if entry investment variety expansion-type RD is subject to the CIA constraint, these variables adversely respond to such a monetary policy. Besides, our model generates rich transitional dynamics in response to a change in monetary policy, when RD entry is restricted by a cash constraint.

Keywords: CIA constraints on RD; endogenous market structure; monetary policy; economic growth (search for similar items in EconPapers)
JEL-codes: E41 O30 O40 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-ino, nep-mac, nep-mon and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Cash-In-Advance Constraint on R&D in a Schumpeterian Growth Model with an Endogenous Market Structure (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:fce:doctra:1316

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