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Cash in advance constraint on RD in a Schimpeterian growth model with an endogenous market structure

Author

Listed:
  • Chienyu Huang

    (Southwestern University of Finance and economics)

  • Juin Jen Chang

    (Institute of economics, Academia Sinica Taiwan)

  • Lei Ji

    (Ofce sciences-po,skema Business School)

Abstract
In this paper we explore the effects of monetary policy on the number of firms, firm market size, inflation and growth in a Schumpeterian growth model with endogenous market structure and cash-in-advance CIA constraints on two distinct types of RD investment in-house RD and entry investment. This allows us to match the empirical evidence and provides novel implications to the literature. We show that if in-house RD (quality improvement-type R&D) is subject to the CIA constraint, raising the nominal interest rate increases the number of firms and inflation, but decreases the firm size and economic growth. By contrast, if entry investment variety expansion-type RD is subject to the CIA constraint, these variables adversely respond to such a monetary policy. Besides, our model generates rich transitional dynamics in response to a change in monetary policy, when RD entry is restricted by a cash constraint.

Suggested Citation

  • Chienyu Huang & Juin Jen Chang & Lei Ji, 2013. "Cash in advance constraint on RD in a Schimpeterian growth model with an endogenous market structure," Documents de Travail de l'OFCE 2013-16, Observatoire Francais des Conjonctures Economiques (OFCE).
    • Handle: RePEc:fce:doctra:1316
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    References listed on IDEAS

    as
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    Cited by:

    1. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi, 2013. "A Schumpeterian Analysis of Monetary Policy, Innovation and North-South Technology Transfer," MPRA Paper 49533, University Library of Munich, Germany.
    2. Chu, Angus C. & Cozzi, Guido & Lai, Ching-Chong & Liao, Chih-Hsing, 2013. "Monetary Policy, R&D and Economic Growth in an Open Economy," MPRA Paper 47364, University Library of Munich, Germany.
    3. Arawatari, Ryo & Hori, Takeo & Mino, Kazuo, 2018. "On the nonlinear relationship between inflation and growth: A theoretical exposition," Journal of Monetary Economics, Elsevier, vol. 94(C), pages 79-93.
    4. Chu, Angus C. & Cozzi, Guido & Lai, Ching-Chong & Liao, Chih-Hsing, 2015. "Inflation, R&D and growth in an open economy," Journal of International Economics, Elsevier, vol. 96(2), pages 360-374.

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    More about this item

    Keywords

    CIA constraints on RD; endogenous market structure; monetary policy; economic growth;
    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
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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