Innovation, Growth and Optimal Monetary Policy

42 Pages Posted: 5 Apr 2016  

Barbara Annicchiarico

University of Rome, Tor Vergata - Department of Economics and Finance

Alessandra Pelloni

University of Rome II, Department of Economics

Date Written: February 2016

Abstract

This paper examines how the mechanism driving growth in the economy is likely to affect the optimal monetary policy response to shocks. We consider the Ramsey policy in a New Keynesian model in which growth is sustained by the creation of new patented technologies through R&D and we compare the results obtained with those arising when growth is exogenous. We find that optimal monetary policy must be counter-cyclical in face of both technology and public spending shocks, but the intensity of the reaction crucially depends on the underlying growth mechanism.

Keywords: Endogenous Growth, R&D, Optimal Monetary Policy, Ramsey Problem

JEL Classification: E32, E52, O42

Suggested Citation

Annicchiarico, Barbara and Pelloni, Alessandra, Innovation, Growth and Optimal Monetary Policy (February 2016). CEIS Working Paper No. 376. Available at SSRN: https://ssrn.com/abstract=2757083 or http://dx.doi.org/10.2139/ssrn.2757083

Barbara Annicchiarico (Contact Author)

University of Rome, Tor Vergata - Department of Economics and Finance ( email )

Rome, I-00133
Italy

Alessandra Pelloni

University of Rome II, Department of Economics ( email )

Via Columbia n.2
Rome, rome 00100
Italy
390672595908 (Phone)

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