Title: Beyond the Short Run: Monetary Policy and Innovation Investment

Speaker: Olga Goldfayn-Frank, Senior Economist at the Research Center of the Deutsche Bundesbank and a CEPR Research Affiliate. Her research examines household financial decisions and expectations, as well as firm behavior, and their implications for the macroeconomy. Her research has appeared or is forthcoming in leading economics journals, including Review of Economic Studies, Journal of Monetary Economics, and AEA Papers and Proceedings.

Abstract: Using a novel approach implemented in a unique survey of German firms, we study how monetary policy affects firms' innovation investment. We find that the ECB's policy rate hike of cumulative 450 basis points at the end of 2023 led 33% of firms to cut innovation spending by 67% on average, with effects persisting through 2024–2025. We show further that while rate hikes discourage innovation investment, cuts stimulate firms' innovation spending. We demonstrate that forward guidance communication can provide significant additional stimulus, suggesting longer-term, supply-side effects of forward guidance. Monetary policy transmission operates through both financial and demand channels, with stronger effects for smaller firms, those with a higher share of bank loans, and those with weak expectations about demand. Our findings indicate persistent effects of monetary policy on longer-term aggregate supply, challenge long-run monetary neutrality and suggest policy-endogeneity of the natural rate of interest R*.

Date & time: 14 April 2026, 10:00-12:00

Venue: B321, Zhixin Building, Central Campus, Shandong University