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Endogenous Growth and Real Effects of Monetary Policy: R&D and Physical Capital Complementarities in a Cash-in-Advance Economy

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  • Pedro Mazeda Gil

    (University of Porto, Faculty of Economics, and cef.up)

  • Gustavo Iglésias,

    (University of Porto, Faculty of Economics)

Abstract

We study the real long-run effects of inflation and of the structural stance of monetary policy in the context of a monetary model of R&D-driven endogenous growth complemented with physical capital accumulation. We look into the effects on a set of real macroeconomic variables that have been of interest to policymakers – the economic growth rate, the real interest rate, the physical investment rate, R&D intensity, and the velocity of money –, and which have been analysed from the perspective of different, separated, strands of the theoretical and empirical literature. Additionally, we analyse the theoretical predictions of our model as regards the effects of inflation on the effectiveness of real industrial policy shocks and on the market structure, assessed namely by the average firm size, and present novel cross-country evidence on the empirical relationship between the latter and the long-run inflation rate.

Suggested Citation

  • Pedro Mazeda Gil & Gustavo Iglésias,, 2018. "Endogenous Growth and Real Effects of Monetary Policy: R&D and Physical Capital Complementarities in a Cash-in-Advance Economy," CEF.UP Working Papers 1802, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:cetedp:1802
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    More about this item

    Keywords

    Keywords: Endogenous growth; R&D; physical capital; firm size; cash-in-advance; inflation; money.;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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