Monetary tightening can reduce innovation, says RBA paper

Higher rates affect small Australian firms more than large ones, research finds

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Monetary tightening can reduce innovation and productivity over the medium term, according to a study led by the Reserve Bank of Australia (RBA).

Economists have traditionally assumed that cyclical factors, such as current economic conditions and monetary policy, do not affect productivity, at least over the medium term. 

However, a discussion paper by Omer Majeed and Jonathan Hambur of the RBA and Robert Breunig of the Australian National University casts doubt on this assumption. 

It says that

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