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R&D and Real Interest Rate in the U.S.: Theory and Empirics

  • Economics


In this paper we investigate the relationship between the long-run real interest rate and the share of resources devoted to research in the U.S. In contrast to what is predicted by many R&D-based growth models we find the two to be positively correlated. We then calibrate a model with endogenous technological change and examine if it can produce a positive relationship between the two variables. Our results provide an appealing explanation for the observed low-frequency variations in the share of labor employed in R&D and the long-run real interest rate and for the productivity slowdown.

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