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Updating the technological base of the economy and real interest rates

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  • Dementiev, V.

    (Central Economics and Mathematics Institute, Russian Academy of Sciences, Moscow, Russia)

Abstract

The article substantiates that the impact of real interest rates on the economy depends on what stage of technological development it is at. A conceptual model of technological changes is proposed, it allows using borrowed capital as a means of accelerated renewal of the technological base of production. The main statements are explained with calculations based on this discrete model, in which successive phases of technological development of the economic system are highlighted. At the stage of active development of new general purpose technologies, increased investment in these technologies can be combined with an increase in interest rates. Attention is drawn to the fact that the policy of low interest rates is not able to compensate for the exhaustion of the possibilities of old general purpose technologies, when the new ones do not yet provide a radical renewal of the technological base of production. The trajectories obtained from the model calculations are compared with the evolution of the real interest rate and the share of private non-residential investments in the US GDP in the period 1961-2021. The dynamics of the indicators under consideration shows that when structural shifts in production are on the agenda, a differentiated approach to individual parts of the economy is required as part of economic policy.

Suggested Citation

  • Dementiev, V., 2023. "Updating the technological base of the economy and real interest rates," Journal of the New Economic Association, New Economic Association, vol. 60(3), pages 104-119.
    • Handle: RePEc:nea:journl:y:2023:i:60:p:104-119
    DOI: 10.31737/22212264_2023_3_104-119
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    More about this item

    Keywords

    monetary policy; technological development; investments; real interest rate; research and development; IS-LM model;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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