Working Paper Series: 2007

Title:

R&D and Real Interest Rate in the US: Theory and Empirics

Number:

03-15

Author:

Constantine Alexandrakis

Issue Date:

September 2003

Abstract:

In this paper we investigate the relationship between the long-run real interest rate and the share of resources
devoted to research in the US. 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.