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development (R&D) by entrants and, if applicable, incumbents. Regardless of the innovation structure, an increase in consumption … economic growth alongside a welfare loss in the homogeneous innovation model. However, in the heterogeneous innovation model … higher welfare. Only higher capital investment subsidies lead to jointly higher growth and welfare in both innovation models …
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Much recent research has focused on the development and analysis of extensions of the New Keynesian framework that model labor market frictions and unemployment explicitly. This chapter describes some of the essential ingredients and properties of those models, and their implications for...
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Standard New Keynesian (NK) models feature an optimal inflation target well below two percent, limited welfare losses from business cycle fluctuations and long-term monetary neutrality. We develop a NK framework with labour market frictions, endogenous productivity and downward wage rigidity...
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