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A Monetary Variety-Expanding Growth Model with a Cash-in-Advance Constraint on Manufacturing

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  • Qichun He

    (Central University of Finance and Economics)

Abstract

We highlight one difference in predictions between Romer's expanding variety model and the Schumpeterian quality-ladder model, when there exists a cash-in-advance (CIA) constraint on manufacturing. In the expanding variety model, a higher nominal interest rate decreases growth, and a negative nominal interest rate would be socially optimal. In contrast, in the quality-ladder model, a higher nominal interest rate increases growth. In the quality-ladder model, when the step-size of innovation is small (i.e., there may be R&D over-investment when the business-stealing effect dominates), the optimal nominal interest rate would be negative. When the step-size of innovation is large, the optimal nominal interest rate would be positive.

Suggested Citation

  • Qichun He, 2015. "A Monetary Variety-Expanding Growth Model with a Cash-in-Advance Constraint on Manufacturing," Economics Bulletin, AccessEcon, vol. 35(1), pages 571-579.
    • Handle: RePEc:ebl:ecbull:eb-14-00995
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    References listed on IDEAS

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    1. Angus C. Chu & Ching‐Chong Lai & Chih‐Hsing Liao, 2019. "A Tale of Two Growth Engines: Interactive Effects of Monetary Policy and Intellectual Property Rights," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(7), pages 2029-2052, October.
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    7. Angus C. Chu & Guido Cozzi, 2014. "R&D And Economic Growth In A Cash‐In‐Advance Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 507-524, May.
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    Cited by:

    1. He, Qichun, 2018. "Inflation and Fertility in a Schumpeterian Growth Model: Theory and Evidence," MPRA Paper 85074, University Library of Munich, Germany.
    2. He, Qichun & Zhang, Zhixiang, 2019. "Inflation and Growth: An Inverted-U Relationship," MPRA Paper 97092, University Library of Munich, Germany.
    3. Mao, Sheng-Zhi & Huang, Chien-Yu & Chang, Juin-Jen, 2019. "Growth effects and welfare costs in an innovation-driven growth model of money and banking," Journal of Macroeconomics, Elsevier, vol. 62(C).
    4. Qichun He & Heng-fu Zou, 2024. "Central Bank Independence and Inflation: Schumpeterian Theory and Evidence," Annals of Economics and Finance, Society for AEF, vol. 25(2), pages 463-500, November.
    5. He, Qichun, 2018. "Inflation and health in a Schumpeterian growth model: Theory and evidence," Economic Modelling, Elsevier, vol. 75(C), pages 159-168.
    6. He, Qichun, 2018. "Inflation and fertility in a Schumpeterian growth model: Theory and evidence1," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 113-126.
    7. He, Qichun, 2018. "Health and Innovation in a Monetary Schumpeterian Growth Model," MPRA Paper 85218, University Library of Munich, Germany.
    8. Arawatari, Ryo & Hori, Takeo & Mino, Kazuo, 2018. "On the nonlinear relationship between inflation and growth: A theoretical exposition," Journal of Monetary Economics, Elsevier, vol. 94(C), pages 79-93.

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    More about this item

    Keywords

    Economic growth; expanding variety model; quality-ladder model; cash-in-advance; Friedman Rule;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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