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Effects of Monetary Policy in a Model with Cash-in-Advance Constraints on R&D and Capital Accumulation

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  • Daiki Maeda
  • Yuki Saito

Abstract

To examine the effect of monetary policy on economic growth, we formulate an endogenous growth model with cash-in-advance constraints on R&D and capital accumulation as endogenous growth engines. Within this framework, we show that the relationship between economic growth and the nominal interest rate can be an inverted-U shape. Moreover, we demonstrate that the welfare-maximizing level of the nominal interest rate is larger than the growth-rate-maximizing level of the nominal interest rate. Finally, we calibrate the model using data for the US to evaluate the growth-rate-maximizing level of the nominal interest rate quantitatively.

Suggested Citation

  • Daiki Maeda & Yuki Saito, 2020. "Effects of Monetary Policy in a Model with Cash-in-Advance Constraints on R&D and Capital Accumulation," ISER Discussion Paper 1076rr, Institute of Social and Economic Research, Osaka University, revised Jan 2025.
    • Handle: RePEc:dpr:wpaper:1076rr
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