This open access book encompasses a collection of in-depth analyses showcasing the challenges and ways forward for macroeconomic modelling of R&D and innovation policies. Based upon the proceedings of the EC-DG JRC-IEA workshop held in Brussels in 2017, it presents cutting-edge contributions from a number of leading economists in the field. It provides a comprehensive overview of the current academic and policy challenges surrounding R&D as well as of the state-of-the-art modelling techniques. The book brings to the forefront outstanding issues related to the assessment of the macroeconomic impact of R&D policies and its modelling. It speaks to the rising importance of R&D and innovation policy, and the proliferation of macroeconomic models featuring endogenous technological change. The contents of this book will be of interest to both academic and policy audiences working in the fields of R&D and innovation.

Modern macroeconomics suffers from an unclear link between short-term Keynesian analysis and long-term growth modelling. This book presents a new link between monetary analysis and growth modelling in open economies. Structural change, innovations and growth are considered from a new perspective. With respect to economic policy - in particular innovation policy - the analysis implies major changes, concerning both EU countries and other leading OECD economies.

We develop a dynamic stochastic general equilibrium model with firm and technology dynamics to assess the impact of a rich set of innovation policies. We explore the aggregate and cross-sectional effects of an R&D tax credit, corporate taxes, and policies affecting firms' access to credit. Two main results emerge. First, the aggregate impact of these policies is driven by general equilibrium effects operating via the government budget, the labor market and via equilibrium entry of firms. In contrast, their stimulating effect on innovation and productivity growth has a negligible impact on aggregate income and employment. Second, we find that uniform policies have heterogeneous effects on firms and their size distribution which generate rich feedbacks to the aggregate economy.

This introductory textbook provides a broad introduction to the field of macroeconomics and the alternative approaches to modeling an economic system. It ultimately demonstrates that economic modeling is always a matter of choice and compromise, and no one school of thought can accurately capture the full essence of a real evolving economic system under all circumstances, in all places, and at all times in history.

Modern macroeconomics suffers from an unclear link between short-term Keynesian analysis and long-term growth modelling. This book presents a new link between monetary analysis and growth modelling in open economies. Structural change, innovations and growth are considered from a new perspective. With respect to economic policy - in particular innovation policy - the analysis implies major changes, concerning both EU countries and other leading OECD economies.