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 effects of monetary policy? In a 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 (weakens) these effects through the R&D (capital-accumulation) channel. Finally, we calibrate the model using data in the US and Euro Area to simulate the welfare cost of inflation and find that the R&D channel dominates in both economies.