Rising prices and Growth: A low-Monotonic Relationship from inside the a development-Driven Discount

Rising prices and Growth: A low-Monotonic Relationship from inside the a development-Driven Discount

Which papers discusses the consequences out of financial policy to your much time-manage economic gains through various other cash-in-improve limits towards the RD inside an excellent Schumpeterian progress model which have vertical and you will horizontal advancement. The fresh design can generate a combined (monotonic or low-monotonic) relationships ranging from rising prices and you may increases, as the the newest cousin strength of monetary consequences on the development anywhere between additional CIA constraints hence off RD-labor-reallocation effects anywhere between various other shrinking returns are very different on the moderate attract rates. From the empirically related situation in which lateral RD suffers from deeper diminishing efficiency than vertical RD, inflation and you may progress normally exhibit an upside down-You relationship if the CIA restriction on the horizontal RD is actually sufficiently bigger than that into straight RD. Ultimately, new design try calibrated with the Us economy, therefore realize that the organization-increasing rate off inflation is approximately dos.8%, that’s closely consistent with previous empirical quotes.

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