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Endogenous innovation under New Keynesian dynamic stochastic general equilibrium model

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  • Tsutomu Harada

Abstract

This paper constructs an endogenous growth model using the framework of New Keynesian dynamic stochastic general equilibrium models. We incorporate the Schumpeterian approach that generates seemingly sticky prices and reinterpret the Calvo mechanism from the perspective of Bertrand competition and successful entrepreneurs. Our results demonstrate that both positive productivity shocks and endogenous innovation have a negative effect on subsequent endogenous innovation. These self-destructive effects of endogenous innovation might account for the IT productivity paradox and productivity slowdown seen in advanced countries. Furthermore, it is shown that there are both neutral and non-neutral properties of monetary policy shocks. They are neutral in terms of the growth effect, but non-neutral in terms of the level effect. In particular, expansionist monetary policies are desirable to facilitate endogenous innovation.

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  • Tsutomu Harada, 2018. "Endogenous innovation under New Keynesian dynamic stochastic general equilibrium model," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 27(4), pages 361-376, May.
    • Handle: RePEc:taf:ecinnt:v:27:y:2018:i:4:p:361-376
    DOI: 10.1080/10438599.2017.1362797
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    Cited by:

    1. Schreiner, Lena & Madlener, Reinhard, 2022. "Investing in power grid infrastructure as a flexibility option: A DSGE assessment for Germany," Energy Economics, Elsevier, vol. 107(C).

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