Innovation, Growth and Optimal Monetary Policy

Annicchiarico BarbaraPelloni Alessandra
CEIS Research Paper
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.

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Number: 376
Keywords: Endogenous Growth, R&D, Optimal Monetary Policy, Ramsey Problem
JEL codes: E32, E52, O42
Volume: 14
Issue: 6
Date: Friday, April 1, 2016
Revision Date: Friday, April 1, 2016