Monetary Policy and Innovation

38 Pages Posted: 20 Sep 2023 Last revised: 6 Oct 2023

See all articles by Yueran Ma

Yueran Ma

University of Chicago - Booth School of Business

Kaspar Zimmermann

Leibniz Institute for Financial Research SAFE

Multiple version iconThere are 2 versions of this paper

Date Written: September 18, 2023


We document that monetary policy has a substantial impact on innovation activities. After a tightening shock of 100 basis points, research and development (R&D) spending declines by about 1 to 3 percent and venture capital (VC) investment declines by about 25 percent in the following 1 to 3 years. Patenting in important technologies, as well as a patent-based aggregate innovation index, declines by up to 9 percent in the following 2 to 4 years. Based on previous estimates of the sensitivity of output to innovation activities, these magnitudes imply that output could be 1 percent lower after another 5 years. Monetary policy can influence innovation activities by changing aggregate demand and correspondingly the profitability of innovation, and by changing financial market conditions. Both channels appear relevant in the data. Our findings suggest that monetary policy may affect the productive capacity of the economy in the longer term, in addition to the well-recognized near-term effects on economic outcomes.

JEL Classification: E2,E5,G31,O3

Suggested Citation

Ma, Yueran and Zimmermann, Kaspar, Monetary Policy and Innovation (September 18, 2023). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2023-125, Available at SSRN: or

Yueran Ma (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Kaspar Zimmermann

Leibniz Institute for Financial Research SAFE ( email )

Frankfurt am Main

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