HUMAN CAPITAL AND INNOVATION IN A MONETARY SCHUMPETERIAN GROWTH MODEL

Chu, Angus C ORCID: 0000-0002-7196-1277, Ning, Lei and Zhu, Dongming (2019) HUMAN CAPITAL AND INNOVATION IN A MONETARY SCHUMPETERIAN GROWTH MODEL. Macroeconomic Dynamics, 23 (5). pp. 1-20.

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Official URL: http://dx.doi.org/10.1017/s1365100517000487

Abstract

<jats:p>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 research and development (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.</jats:p>

Item Type:	Article
Uncontrolled Keywords:	9 Industry, Innovation and Infrastructure
Depositing User:	Symplectic Admin
Date Deposited:	28 Mar 2019 09:18
Last Modified:	17 Mar 2024 03:23
DOI:	10.1017/S1365100517000487
Related URLs:	Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3035149