Human Capital and Innovation in a Monetary Schumpeterian Growth Model

Angus Chu, Ning Lei and Zhu Dongming

MPRA Paper from University Library of Munich, Germany

Abstract: This study explores the growth and welfare effects of monetary policy in a scale-invariant Schumpeterian growth model with endogenous human capital accumulation. We model money demand via a cash-in-advance (CIA) constraint on R&D investment. Our results can be summarized as follows. We find that an increase in the nominal interest rate leads to a decrease in R&D and human capital investment, which in turn reduces the long-run growth rates of technology and output. This result stands in stark contrast to the case of exogenous human capital accumulation in which the long-run growth rates of technology and output are independent of the nominal interest rate. Simulating the transitional dynamics, we find that the additional long-run growth effect under endogenous human capital accumulation amplifies the welfare effect of monetary policy. Decreasing the nominal interest rate from 10% to 0% leads to a welfare gain that is equivalent to a permanent increase in consumption of 2.82% (2.38%) under endogenous (exogenous) human capital accumulation.

Keywords: monetary policy; economic growth; R&D; human capital (search for similar items in EconPapers)
JEL-codes: E41 O3 O4 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-cse, nep-gro, nep-ino, nep-knm and nep-mac
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Related works:
Journal Article: HUMAN CAPITAL AND INNOVATION IN A MONETARY SCHUMPETERIAN GROWTH MODEL (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:70453

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