MONETARY POLICY AND ENDOGENOUS MARKET STRUCTURE IN A SCHUMPETERIAN ECONOMY

Chu, Angus C ORCID: 0000-0002-7196-1277 and Ji, Lei (2016) MONETARY POLICY AND ENDOGENOUS MARKET STRUCTURE IN A SCHUMPETERIAN ECONOMY. MACROECONOMIC DYNAMICS, 20 (5). pp. 1127-1145.

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Official URL: http://dx.doi.org/10.1017/s1365100514000765

Abstract

<jats:p>This study develops a monetary Schumpeterian model with endogenous market structure (EMS) to explore the effects of monetary policy on the number of firms, firm size, economic growth, and social welfare. EMS leads to different results from previous studies in which market structure is exogenous. In the short run, a higher nominal interest rate reduces the growth rates of innovation, output, and consumption and decreases firm size through reduction in labor supply. In the long run, a higher nominal interest rate reduces the equilibrium number of firms but has no steady-state effect on economic growth and firm size because of EMS. Although monetary policy has no long-run growth effect, increasing the nominal interest rate permanently reduces the levels of output, consumption, and employment. Taking transition dynamics into account, we find that welfare is decreasing in the nominal interest rate and the Friedman rule is optimal in this economy.</jats:p>

Item Type:	Article
Uncontrolled Keywords:	Monetary Policy, Economic Growth, R&D, Endogenous Market Structure
Depositing User:	Symplectic Admin
Date Deposited:	28 Mar 2019 08:49
Last Modified:	28 Mar 2023 06:51
DOI:	10.1017/S1365100514000765
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3035160