UCL Institute for Innovation and Public Purpose


The macroeconomic implications of market-shaping and mission-oriented policy

This research stream aims to offer a new way of understanding the macroeconomic implications of market-shaping policies in terms of long-term investment and economic growth.

This research will build on the work of Professor Mariana Mazzucato and Dr. Matteo Deleidi on the macroeconomic effects of public investment in innovation and Dr. Josh Ryan-Collins’ work on the role of central banks and financial regulators in encouraging productive lending by the banking sector. To fully understand how effective the role of the public sector can be in fostering and influencing the direction of economic growth in the long run, it is fundamental to disentangle the channels through which public intervention can influence private investment.

For this reason, it becomes particularly relevant to have a robust empirical and theoretical analysis of the dynamic impact that different macroeconomic interventions have on the economy, including the effects on private investments.

The crucial questions that will be addressed are the following:

  • Can expansionary fiscal policies generate positive and permanent effects on GDP?
  • What size of economic multipliers associated with different types of fiscal policy, including directed public investment in innovation and mission-oriented policies as well as standard capital investment?
  • Can fiscal policies ‘crowd-in’ private investment rather than crowd it out? If so, what types of policy are most effective?
  • What is the role of private expectations on the interaction between state-funded innovation initiatives and firms’ investment in R&D?
  • Under conditions of uncertainty about the future, what is the role of monetary policy and financial regulation in stimulating business investment and growth and how should monetary and fiscal policy be coordinated?
  • What is the role of central banks and financial regulators in shaping financial markets to support innovation-led, sustainable growth?

To answer these questions, IIPP proposes a new theoretical framework that combines relevant insights from the literature on innovation (public and private) and industrial economics with the current debate in macroeconomics over the effects of different types of fiscal and monetary policies. The necessity for this new approach emerges from a twofold motivation: (i) to improve our understanding of the effects of fiscal and monetary policies on GDP growth and business investment; (ii) to assess the fundamental role that can be played by public policies in shaping and creating new markets and directions for technological advancements.

The motivation for such analysis arises from the Great Recession that followed the 2008 financial crisis, the current phase of economic stagnation, and the actual response that governments and central banks set out in terms of monetary and fiscal policies. In particular, the post-crisis response featured expansionary monetary policy combined with a restrictive fiscal policy, in the hope that an increase in the money supply and ensuing lower interest rates would be effective in fostering economic activity. Nevertheless, such policies have not generated the expected results for three main reasons: (i) a cut in public expenditures generates a permanent fall in GDP rather than an alleged expansion; (ii) an increase in money supply does not necessarily increase either the volume of private investment or the level of household consumption; (iii) low interest rates are ineffective in stimulating private enterprise and aggregate demand.

Project management and collaborations

This stream of research will be based on a new collaboration between IIPP and the Sraffa Centre at the Department of Economics at Roma Tre University. The people involved in this research include: Professor Mariana Mazzucato, Director of IIPP at UCL and Josh Ryan-Collins, Head of Research at IIPP; Matteo Deleidi, research fellow at Roma Tre University and Honorary research associate at IIPP, expert in macroeconomic policies and econometrics; Professor Antonella Stirati and Professor Enrico Sergio Levrero, experts in Macroeconomics and theory of value and distribution; Professor Roberto Ciccone, expert in public debt and theory of value and distribution; Dr. Vincenzo De Lipsis, research fellow at UCL, expert in macroeconomic policies and econometrics.

Research publications

Supermultiplier, innovation and the ecosystem: A stock-flow dynamic model
Working Paper
Ref: IIPP WP 2019-01

Bringing the helicopter to ground: A historical review of fiscal-monetary coordination to support economic growth in the 20th century
Working Paper
Ref: IIPP WP 2018-08
Read an introduction to the working paper on our blog:
We don’t need helicopters for better monetary policy, 15 August 2018

Putting austerity to bed: technical progress, aggregate demand and the supermultiplier.
Working Paper
Ref: IIPP WP 2018-02

The effectiveness and impact of post-2008 UK monetary policy
Policy Brief
Ref: IIPP Brief 03

Matteo Deleidi (2017) Post Keynesian endogenous money theory: A theoretical and empirical investigation of the credit demand schedule, Journal of Post Keynesian Economics, 41:2, 185-209, DOI: 10.1080/01603477.2017.1338967

Deleidi, M, De Lipsis, V., Mazzucato, M., Ryan-Collins, J. & Agnolucci, P., (2018). The macroeconomic impact of different types of fiscal policy. UCL Institute for Innovation and Public Purpose policy report for Innovate UK (forthcoming)

Further reading

Mariana Mazzucato (2013), "The Entrepreneurial State: debunking public vs. private sector myths", Anthem Press: London, UK, ISBN 9780857282521, US edition (Public Affairs) and translated into Italian (Laterza), German (Kunstmann), Spanish (RBA Books), Portuguese (Companhia Das Letras), Dutch (Nieuw Amsterdam), Greek (Kritiki), and forthcoming in Chinese, Japanese, Korean and Polish.

Mariana Mazzucato (2016) "From Market Fixing to Market-Creating: A new framework for innovation policy",  Special Issue of Industry and Innovation: “Innovation Policy – can it make a difference?”, 23 (2)

Pierangelo Garegnani (1992) Some Notes for an Analysis of Accumulation. In Halevi, J., Laibman, D., & Nell, E. J. (Ed.). Beyond the Steady State: Essays in the Revival of Growth Theory. Palgrave Macmillan UK.

Pierangelo Garegnani (2015) The problem of effective demand in Italian economic development: on the factors that determine the volume of investment. Review of Political Economy27(2), 111-133.

Sergio Cesaratto, Franklin Serrano and Antonella Stirati (2003) Technical change, effective demand and employment. Review of Political Economy15(1), 33-52.

Ryan-Collins, J., Greenham, T., Bernardo, G., Werner. R.A. (2013) Strategic Quantitative Easing: Stimulating Investment to rebuild the economy, NEF: London (Hadley Trust)

Ryan-Collins, J., Greenham, T, Werner, R. and Jackson, D., (2011) Where does money come from?  A guide to the UK Monetary and Banking system, NEF: London