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Monetary policy and endogenous market structure in a Schumpeterian economy

Angus Chu () and Lei Ji

MPRA Paper from University Library of Munich, Germany

Abstract: In this note, we develop a monetary Schumpeterian growth model to explore the effects of monetary policy on endogenous market structure, economic growth and social welfare. We find that an increase in the nominal interest rate reduces the equilibrium number of firms. Although long-run economic growth is independent of the nominal interest rate due to a scale-invariant property of the model, a higher nominal interest rate leads to lower growth rates of innovation, output and consumption during the transition path. Taking into account transition dynamics, we find that social welfare is decreasing in the nominal interest rate; therefore, Friedman rule is socially optimal in this economy.

Keywords: monetary policy; economic growth; R&D; endogenous market structure (search for similar items in EconPapers)
JEL-codes: O30 O40 E41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fdg, nep-ino, nep-mac and nep-mon
Date: 2012-08
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https://mpra.ub.uni-muenchen.de/40467/1/MPRA_paper_40467.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/53339/1/MPRA_paper_53339.pdf revised version (application/pdf)

Related works:
Journal Article: MONETARY POLICY AND ENDOGENOUS MARKET STRUCTURE IN A SCHUMPETERIAN ECONOMY (2016) Downloads
Working Paper: Monetary policy and endogenous market structure in a schumpeterian economy (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:40467

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