Innovation, Productivity, and Monetary Policy

51 Pages Posted: 26 Nov 2017

See all articles by Patrick Moran

Patrick Moran

University of Oxford - Department of Economics

Albert Queralto

Federal Reserve Board - Trade and Financial Studies Section

Date Written: 2017-11-22

Abstract

To what extent can monetary policy impact business innovation and productivity growth? We use a New Keynesian model with endogenous total factor productivity (TFP) to quantify the TFP losses due to the constraints on monetary policy imposed by the zero lower bound (ZLB) and the TFP benefits of tightening monetary policy more slowly than currently anticipated. In the model, monetary policy influences firms incentives to develop and implement innovations. We use evidence on the dynamic effects of R&D and monetary shocks to estimate key parameters and assess model performance. The model suggests significant TFP losses due to the ZLB.

Keywords: Endogenous Technology, Business Cycles, Monetary Policy

JEL Classification: E32, F41, F44, G15

Suggested Citation

Moran, Patrick and Queralto, Albert, Innovation, Productivity, and Monetary Policy (2017-11-22). FRB International Finance Discussion Paper No. 1217. Available at SSRN: https://ssrn.com/abstract=3076837 or http://dx.doi.org/10.17016/IFDP.2017.1217

Patrick Moran

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, OX1 3UQ
United Kingdom

Albert Queralto (Contact Author)

Federal Reserve Board - Trade and Financial Studies Section ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States

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