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Innovation and Inequality in a Monetary Schumpeterian Model with Heterogeneous Households and Firms

Author

Listed:
  • Angus C. Chu

    (Fudan University)

  • Guido Cozzi

    (University of St. Gallen)

  • Haichao Fang

    (Fudan University)

  • Yuichi Furukawa

    (Chukyo University)

  • Chih-Hsing Liao

    (Chinese Culture University)

Abstract

This study develops a monetary Schumpeterian growth model with heterogeneous households and heterogeneous firms to explore the effects of inflation on innovation and income inequality. Household heterogeneity arises from an unequal distribution of wealth. Firm heterogeneity arises from random quality improvements. Under endogenous firm entry, inflation has an inverted-U effect on economic growth and income inequality. Calibrating the model for a quantitative analysis, we find that the model can match the growth-maximizing and inequality-maximizing inflation rates that are estimated using cross-country panel data. Finally, we simulate the utility-maximizing inflation rate and explore how it is affected by relative household wealth. (Copyright: Elsevier)

Suggested Citation

  • Angus C. Chu & Guido Cozzi & Haichao Fang & Yuichi Furukawa & Chih-Hsing Liao, 2019. "Innovation and Inequality in a Monetary Schumpeterian Model with Heterogeneous Households and Firms," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 141-164, October.
    • Handle: RePEc:red:issued:18-328
    DOI: 10.1016/j.red.2019.03.006
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    More about this item

    Keywords

    Inflation; Income inequality; Economic growth; Heterogeneity;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • D30 - Microeconomics - - Distribution - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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