Discussion Paper Details
Please find the details for DP16184 in an easy to copy and paste format below:
Title: Do Low Interest Rates Harm Innovation, Competition, and Productivity Growth?
Author(s): Craig Chikis, Jonathan E Goldberg and J David López-Salido
Publication Date: May 2021
Keyword(s): growth, Innovation, Markups and Real interest rate
Programme Area(s): Macroeconomics and Growth and Monetary Economics and Fluctuations
Abstract: The answer to this question crucially depends on the nature of creative destruction. In Schumpeterian models, if innovation by market laggards only incrementally refines their existing technology, then, as the interest rate falls to very low levels, growth declines with low-R&D market leaders becoming entrenched. However, if market laggards have some chance to innovate radically and immediately catch up to the leading technology, low interest rates boost productivity growth. Using micro data, we structurally estimate a Schumpeterian model that nests these alternative possibilities. In the estimated model, laggards have a meaningful chance to innovate radically, implying that low interest rates increase growth and market competition. Incorporating firm entry, optimal patent policy, and financial frictions strengthens our results.
For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16184
Chikis, C, Goldberg, J and López-Salido, J. 2021. 'Do Low Interest Rates Harm Innovation, Competition, and Productivity Growth?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=16184