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Title: Technological innovations and the interest rate
Authors: Leão, E. R.
Keywords: Dynamic general equilibrium
Technological innovation
Interest rate
Issue Date: 2002
Publisher: Dinâmia
Series/Report no.: Dinâmia Working Paper
Abstract: We build a dynamic general equilibrium model where there are banks that charge interest for their loans to the private sector. We look at the response of the interest rate to innovations in the banks’ technology and to innovations in the nonbank firms’ technology. We find that whereas technological innovations in the nonbanking sector put upward pressure on the interest rate, technological innovations in banks exert downward pressure on the interest rate. This property of the model is behind our main result: in stochastic simulation experiments where the technological shocks in banks are highly positively correlated with the technological shocks in firms, we obtain a strong negative correlation between the current interest rate and future values of real output. This corresponds to what the data show us [see King and Watson (1996)].
Description: JEL Classification: E17, E24, E32, E43 (The full list of JEL codes can be found at
Peer reviewed: Sim
Appears in Collections:DINÂMIA'CET-WP - Working papers com arbitragem científica

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