Inflation and innovation value: How inflation affects innovation and the value strategy across firms

Leonardo Andrade Rocha; Leonardo Querido Cárdenas; Felipe Alves Reis; Napiê Galvê Araújo Silva; Carlos Alano Soares de Almeida

doi:10.52292/j.estudecon.2021.2334

Authors

Leonardo Andrade Rocha Universidade Federal Rural do Semi-Árido (UFERSA), Brasil. https://orcid.org/0000-0003-2777-0702
Leonardo Querido Cárdenas Universidade Federal Rural do Semi-Árido (UFERSA), Brasil. https://orcid.org/0000-0002-7966-3311
Felipe Alves Reis Universidade Federal Rural de Pernabuco (UFRPE), Brasil. https://orcid.org/0000-0003-3578-5357
Napiê Galvê Araújo Silva Universidade Federal Rural do Semi-Árido (UFERSA), Brasil. https://orcid.org/0000-0002-3342-5975
Carlos Alano Soares de Almeida Universidade Federal Rural do Semi-Árido (UFERSA), Brasil. https://orcid.org/0000-0002-8350-2094

DOI:

https://doi.org/10.52292/j.estudecon.2021.2334

Keywords:

Innovation, inflation, R&D

Abstract

This research analyzes the effects of inflation on R&D investments and innovation-driven growth. For this, an innovation-driven growth model was built in which firms invest own resources and resources from financial institutions. Credit costs depend on the interest rate charged by these institutions. In an inflation-targeting
regime, the monetary authority adjusts the nominal interest rate in order to converge current inflation to the established target. It adjusts the interest rate of financial institutions, changing the opportunity cost of investments. As a result, rising inflation promotes a reduction in R&D investments demand, reducing the rate of technological progress. In the empirical exercise of the model, the estimated coefficient of elasticity of R&D investments is negatively affected by inflation.

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