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| Qichun He |
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| ''A Monetary Variety-Expanding Growth Model with a Cash-in-Advance Constraint on Manufacturing'' |
| ( 2015, Vol. 35 No.1 ) |
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| We highlight one difference in predictions between Romer's expanding variety model and the Schumpeterian quality-ladder model, when there exists a cash-in-advance (CIA) constraint on manufacturing. In the expanding variety model, a higher nominal interest rate decreases growth, and a negative nominal interest rate would be socially optimal. In contrast, in the quality-ladder model, a higher nominal interest rate increases growth. In the quality-ladder model, when the step-size of innovation is small (i.e., there may be R&D over-investment when the business-stealing effect dominates), the optimal nominal interest rate would be negative. When the step-size of innovation is large, the optimal nominal interest rate would be positive. |
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| Keywords: Economic growth, expanding variety model, quality-ladder model, cash-in-advance, Friedman Rule |
JEL: O3 - Technological Change; Research and Development: General
E4 - Money and Interest Rates: General |
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| Manuscript Received : Dec 10 2014 | | Manuscript Accepted : Mar 12 2015 |
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