A Tale of Two Growth Engines: Interactive Effects of Monetary Policy and Intellectual Property Rights

Angus C. Chu, Ching Chong Lai, Chih Hsing Liao

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

How do intellectual property rights that determine the market power of firms influence the growth and welfare effects of monetary policy? To analyze this question, we develop a monetary hybrid endogenous growth model in which R&D and capital accumulation are both engines of long-run economic growth. We find that monetary expansion hurts economic growth and social welfare by reducing R&D and capital accumulation. Furthermore, a larger market power of firms strengthens these growth and welfare effects of monetary policy through the R&D channel but weakens these effects through the capital-accumulation channel. Therefore, whether the market power of firms amplifies or mitigates the welfare cost of inflation depends on the relative importance of the two growth engines. Finally, we calibrate the model using data in the United States and the Euro Area to quantitatively evaluate and compare the welfare cost of inflation in these two economies and find that the R&D channel dominates in both economies.

Original languageEnglish
Pages (from-to)2029-2052
Number of pages24
JournalJournal of Money, Credit and Banking
Volume51
Issue number7
DOIs
StatePublished - 1 Oct 2019

Keywords

  • E41
  • O30
  • O40
  • R&D
  • economic growth
  • inflation
  • monetary policy
  • patent policy

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