The Effect of Inflation on Wage Inequality: A North–South Monetary Model of Endogenous Growth with International Trade

This study analyzes the effects of inflation on intra- and intercounty wage inequality, specialization, and growth, using a North–South endogenous growth model with international trade and money. The relationship between inflation and intracountry wage inequality depends on firms' credit constraints and on the inflation levels. Our results indicate that inflation decreases specialization in skilled production and increases intracountry wage inequality. Moreover, increasing inflation in the South increases the wage inequality gap between countries. Theoretical results are confirmed through calibration and match with existing empirical evidence.     

Measuring the Cost‐Effectiveness of an R&D Tax Credit for the UK

This paper investigates the economic impact of the government's proposed new UK R&D tax credit. We measure the benefit of the credit by the effect on value added in the short and long runs. This is simulated from existing econometric estimates of the tax‐price elasticity of research and development (R&D) and the effect of R&D on productivity. For the latter, we allow R&D to have an effect on technology transfer (catching up with the technological frontier) as well as innovation (pushing the frontier forward). We then compare the increase in value added to the likely exchequer costs of the programme under a number of scenarios. In the long run, the increase in GDP far outweighs the costs of the tax credit. The short‐run effect is far smaller, with value added only exceeding cost if R&D grows at or below the rate of inflation.     

Money and the Welfare Cost of Inflation in an R&D Growth Model

This study analyzes the effects of inflation on R&D and innovation‐driven growth. In the theoretical section, we incorporate money demand into a quality‐ladder model with elastic labor supply and derive the following result. If the elasticity of substitution between consumption and the real money balance is less (greater) than unity, then R&D and the growth rate of output would be decreasing (increasing) in the growth rate of money supply. Quantitatively, decreasing inflation in the U.S. to achieve price stability improves social welfare, and the welfare gain is equivalent to at least 0.5% of annual consumption. In the empirical section, we use cross‐country data to establish a negative and statistically significant relationship between inflation and R&D.     

Real Wage Rigidities and the New Keynesian Model

Most central banks perceive a trade‐off between stabilizing inflation and stabilizing the gap between output and desired output. However, the standard new Keynesian framework implies no such trade‐off. In that framework, stabilizing inflation is equivalent to stabilizing the welfare‐relevant output gap. In this paper, we argue that this property of the new Keynesian framework, which we call the divine coincidence, is due to a special feature of the model: the absence of nontrivial real imperfections. We focus on one such real imperfection, namely, real wage rigidities. When the baseline new Keynesian model is extended to allow for real wage rigidities, the divine coincidence disappears, and central banks indeed face a trade‐off between stabilizing inflation and stabilizing the welfare‐relevant output gap. We show that not only does the extended model have more realistic normative implications, but it also has appealing positive properties. In particular, it provides a natural interpretation for the dynamic inflation–unemployment relation found in the data.     

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

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.     

The Impact of a Minimum‐Wage Increase on Temporary‐Contract Workers

We study the impact of the 2016 increase in the Irish minimum wage on the hours worked and the probability of job loss of minimum‐wage workers. We pay particular attention to temporary‐contract workers, who may be more susceptible to changes to their working conditions than permanent employees. The results indicate that the increase in the minimum wage had a negative and statistically significant effect on the hours worked of minimum‐wage workers, with an average reduction of approximately 0.6 hours per week. For temporary workers, the effect was greater, with a decline of approximately 3 hours per week. We find no evidence that the increase in the minimum wage led to an increased probability of becoming jobless in the six‐month period following the rate change, nor did it affect employment shares in sectors employing large numbers of minimum‐wage workers.     

Have R&D Spillovers Declined in the 21st Century?

Slow growth over the last decade has prompted policy attention towards increasing R&D spending, often via the tax system. We examine the impact of R&D on firm performance, both by the firm's own investments and through positive (and negative) spillovers from other firms. We analyse panel data on US firms over the last three decades, and allow for time‐varying spillovers in both technology space (knowledge spillover) and product market space (product market rivalry). We show that the magnitude of R&D spillovers remains as large in the second decade of the 21^st century as it was in the mid 1980s. Since the ratio of the social return to the private return to R&D is about four to one, this implies that there remains a strong case for public support of R&D. Positive spillovers appeared to temporarily increase in the 1995–2004 digital technology boom. We also show how these micro estimates relate to estimates from the endogenous growth literature and give some suggestions for future work.     

Optimal monetary policy with distinct core and headline inflation rates

In a stylized DSGE model with an energy sector, the optimal policy response to an adverse energy supply shock implies a rise in core inflation, a larger rise in headline inflation, and a decline in wage inflation. The optimal policy is well approximated by policies that stabilize the output gap, but also by a wide array of “dual mandate” policies that are not overly aggressive in stabilizing core inflation. Finally, policies that react to a forecast of headline inflation following a temporary energy shock imply markedly different effects than policies that react to a forecast of core, with the former inducing greater volatility in core inflation and the output gap.     

Endogenous Growth and Real Effects of Monetary Policy: R&D and Physical Capital Complementarities

We study the real long-run effects of the structural stance of monetary policy and of inflation, in the context of a monetary growth model where R&D is complemented with physical capital accumulation. We look into the effects on a set of real macroeconomic variables that have been of interest to policymakers—the economic growth rate, real interest rate, physical investment rate, capital-to-labor ratio, R&D intensity, and velocity of money. These variables have been previously analyzed from the perspective of different, separated, strands of the theoretical and empirical literature. Additionally, we analyze the long-run relationship between inflation and both the effectiveness of real industrial-policy shocks and the market structure, assessed namely by average firm size. We present novel cross-country evidence on the empirical relationship between the latter and long-run inflation.     

Real Effects of Money Growth and Optimal Rate of Inflation in a Cash‐in‐Advance Economy with Labor‐Market Frictions

This paper studies the consequences of labor‐market frictions for the real effects of steady inflation when cash is required for households' consumption purchases and firms' wage payments. Money growth may generate a positive real effect by encouraging vacancy creation and raising job matches. This may result in a positive optimal rate of inflation, particularly in an economy with moderate money injections to firms and with nonnegligible labor‐market frictions in which wage bargains are not efficient. This main finding holds for a wide range of money injection schemes, with alternative cash constraints, and in a second‐best world with preexisting distortionary taxes.     

近十年中国通货膨胀成因的实证分析

近年来,如何防范和治理通货膨胀已成为中国宏观经济领域亟需解决的一项重大课题,而治理通胀的关键在于对其形成原因的科学把握。本文选取CPI和PPI作为通货膨胀的衡量指标,以产出缺口、货币供应量、国际大宗商品价格、超额工资水平、资产价格、汇率水平六大因素作为解释变量,运用向量自回归(VAR)、脉冲响应和方差分解的方法,对2000-2011年中国通货膨胀的形成原因进行实证分析,得到了各项因素的作用大小、作用时滞和传导链条的顺序,最后提出了相应的政策建议。     

How Do Nominal and Real Rigidities Interact? A Tale of the Second Best

This paper analyzes the importance of real wage rigidities, in particular through their interaction with price stickiness, in a New Keynesian model. Real wage rigidities result from a combination of staggered wage setting and partial indexation of nonreset wages to past inflation. Blanchard and Galí (2007) show real rigidities to introduce a trade‐off between stabilizing inflation and the welfare‐relevant output gap. The present paper complements their findings by showing that the welfare costs of real rigidities can be substantial compared to nominal frictions. In a typical “tale of the second best,” we also show that in the presence of real wage rigidities, higher price stickiness can be welfare enhancing.     

The Internationalisation of UK R&D

Policies to promote research and development (R&D) are high on the government's agenda. R&D and innovation are seen as key drivers of economic growth and important for raising UK productivity. This paper considers recent trends in UK R&D performance. We show that UK R&D is more internationalised than that of other G5 countries and is becoming increasingly so at a faster rate. A rising share of UK R&D is funded from abroad and UK firms are undertaking more of their R&D overseas. Using an international panel of countries, we show that R&D in one country responds to a change in the price in another ‘competitor’ country. This suggests that UK innovation policies could play an important role in determining whether increasingly footloose R&D locates in the UK or moves overseas.     

金融科技、科技金融与区域研发创新

基于2012-2018年中国省际面板数据,实证分析统一框架下金融科技、科技金融与区域研发创新之间的关系,结果发现：金融科技和科技金融对区域研发创新效率提升有促进作用,其中金融科技通过金融资源配置效率的中介作用影响区域研发创新,科技金融通过资本回报率影响区域创新研发;金融科技的提升作用更侧重于研发产出和成果转化阶段,并随着创新流程的深入不断上升,而科技金融更聚焦于研发投入,并在研发产出阶段展现了一定抑制作用;金融科技和科技金融的交互效应对全国和东部地区的创新发展具有积极影响,而对中、西地区的影响不显著。     

What is the After‐Tax Price of R&D? An Interstate Comparison*

As of 2005, 31 US states offered corporate income tax credits on research and development (R&D) expenses in order to encourage more in‐state innovation activities. Empirical questions about the efficacy of such tax breaks at the state level persist, in part because the complexity of the tax laws means that simple credit‐rate comparisons across states do not fully capture the differential variation in effective after‐tax price incentives firms face in choosing where to locate R&D activities. We are unaware of any research analysing and comparing the effective prices of R&D faced by firms, across all US states and utilising micro‐level data. Using data extracted from detailed reading of individual firms' 10‐K and S‐1 filings and of state‐level tax credit rules, we estimate the effective after‐tax price of basic and qualified research expenditure each firm would have faced in each of the 50 states had they been located there. Our methodology simulates the effective tax price of each firm's marginal dollar of research expenditure, assuming the firm chose to move all of its R&D operations to each of the 49 other states. Through Monte Carlo techniques, we consider the sensitivity of our interstate comparative results to several modelling assumptions. We find significant variation in after‐tax R&D prices across states with quite different R&D tax laws. Prices range from $0.176 to $0.520 on a marginal dollar of R&D in Virginia and Washington State, respectively. We also find that the interstate variability is generally more important – indeed, much wider than we had anticipated before investigating state‐by‐state regulations – than the inter‐firm variability within states.     

How does the executive pay gap influence audit fees? The roles of R&D investment and institutional ownership

Using a sample of US firms from 2003–2014, this study examines how the executive pay gap affects audit fees for firms with different levels of R&D investment and institutional ownership. Consistent with managerial power theory, we find that the executive pay gap is positively associated with audit fees, and that the positive association is attenuated by intense R&D investment and higher institutional ownership. We also find that the executive pay gap more strongly affects audit fees after the passage of the 2010 Dodd–Frank Act and the PCAOB's 2012 call to identify the audit risk related to executive incentive compensation. Additional analyses show that the moderating effects of R&D investment and institutional ownership on the pay gap–audit fees association are not conditional on auditor tenure, but the moderating effect of institutional ownership is stronger for firms hiring specialist auditors. Collectively, our findings suggest that auditors consider the business context, such as innovation initiative and external monitoring, when assessing audit risk related to the executive pay gap.     

Government R&D spending,fiscal instruments and corporate technological innovation

Using panel data from 242 cities in China, we examine the impact of government research and development (R&D) spending on corporate technological innovation. We find that listed firms located in cities with higher government R&D expenditures are more innovative than firms in other cities. Further, the positive effect of government R&D spending depends on fiscal instruments and factor allocation. Through subsidies and tax incentives, government R&D spending enhances firm innovation by alleviating financing constraints, improving employee creativity and ensuring efficient operations. We demonstrate that subsidies are more effective than taxes in spurring corporate technological innovation. We also show that the impact of government R&D spending is stronger for state-owned and high-tech enterprises than for other enterprises. Overall, our findings suggest that government R&D spending can substantially improve corporate technological innovation through fiscal instruments.     

Do Stronger Patents Stimulate or Stifle Innovation? The Crucial Role of Financial Development

This study explores the effects of patent protection in a research and development (R&D)-based growth model with financial frictions. We find that whether stronger patent protection stimulates or stifles innovation depends on credit constraints faced by R&D entrepreneurs. When credit constraints are nonbinding (binding), strengthening patent protection stimulates (stifles) R&D. The overall effect of patent protection on innovation follows an inverted-U pattern. By relaxing the credit constraints, financial development stimulates innovation. Furthermore, patent protection is more likely to have a positive effect on innovation under a higher level of financial development. We consider cross-country panel regressions and find supportive evidence for this result.     

International innovation and strategic initiatives: A research agenda

Despite the argument that leveraging the expertise of foreign subsidiaries to the global firm benefits the whole firm's competitive advantage, in the case of international innovation, such leveraging rarely takes place. We investigate this paradox, applying research on strategic initiatives to the context of international R&D. Developing a conceptual model on the basis of communication psychology, we analyse how the innovative expertise of R&D subsidiaries may be leveraged to benefit the global firm. Specifically, we determine six elements whose greater exploration can lead to a deeper understanding of how the innovation expertise of a foreign R&D subsidiary may be leveraged.     

Corporate responsibility towards employees and innovation: Evidence from an emerging market

Against a background of rising labor costs and the need to build a harmonious labor–capital relationship in China, this paper focuses on non-pecuniary incentives for employees and discusses the impact of corporate social responsibility (CSR) towards employees on innovation performance. The empirical results show that CSR towards employees significantly promotes corporate innovation, and that this effect remains robust after accounting for alternative proxies and endogeneity issues. In addition, the positive effect of CSR towards employees on innovation is more significant for firms in high-tech industries, with high levels of R&D inputs and high valuation of employee collaboration. Further analysis indicates that CSR towards employees does not promote R&D investment, but does significantly improve innovation efficiency and the marginal output of R&D investment and reduces the turnover rate of management-level staff with production and R&D backgrounds, which is conducive to stability of the innovation team. In addition, this paper also finds that for companies with high R&D expenditures, CSR towards employees significantly eases the sensitivity between executive turnover and performance, which helps executives resist pressure arising from a decline in short-term performance. The findings of this paper have implications for improving labor–capital relations and enhancing firm innovation capabilities.