Innovation, Productivity, and Monetary Policy
51 Pages Posted: 26 Nov 2017
Date Written: 2017-11-22
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: Suggested Citation