Professor Howitt has studied almost all aspects of macroeconomics, with a special emphasis on the causes and consequences of inflation, the role of monetary policy in promoting economic stability, the causes of lasting unemployment, and the sources of economic growth. Much of his research for the past two decades had been devoted to understanding the role of innovation and technological progress in shaping a country's growth prospects.
Professor Howitt was the first economist to demonstrate under general theoretical conditions that a central bank aiming to stabilize the rate of inflation must allow interest rates to respond vigorously to past changes in inflation. Specifically, with each percentage point increase in inflation, the central bank's interest rate must increase by more than one percentage point. This principle has proven to be of much practical value in the conduct of monetary policy throughout the world. In recent work with Professor Philippe Aghion of Harvard University, he has also shown how a country's long-run growth performance can be determined by policies and institutions that affect the incentive for firms to innovate. Lately that has led them to a theory of "Appropriate Growth Policy," according to which a country's institutions and prior state of development dictate which kinds of policies are likely best to promote growth. For example, more vigorous anti-trust policy is likely to promote growth in countries (and specific industries in a country) that are close to the world technology frontier, whereas the same policies are likely to retard growth in countries far behind the frontier. Professors Howitt and Aghion developed this proposition theoretically and have found strong evidence for it using a rich firm-level data set covering all publicly listed manufacturing firms in the U.K. for about 20 years.
