Space Economy under Monetary Tightening: a DSGE analysis

The rapid expansion of the New Space Economy has renewed interest in the macroeconomic implications of aerospace investment and its interaction with financial and monetary conditions. Although existing research highlights the role of space activities in generating technological spillovers and long-run productivity gains, limited attention has been devoted to how monetary policy affects the transmission and effectiveness of these investments. This issue is particularly relevant because the aerospace sector is highly capital intensive and strongly dependent on financing conditions and interest-rate dynamics. To address this gap, we extend the endogenous-growth DSGE framework of Corrado et al.(2023) by incorporating monetary-policy transmission and aerospace-sector spillovers. We analyze three scenarios: an expansionary space-investment shock, a restrictive monetary-policy shock, and a joint shock combining both dynamics. The results reveal a strong interaction between monetary conditions and aerospace activity. While space-investment shocks stimulate technological spillovers and long-run growth potential, restrictive monetary policy weakens aggregate demand and delays these positive effects. In the jointshock scenario, monetary tightening dominates short-run dynamics, temporarily offsetting the benefits of space investment. Overall, the findings suggest that the macroeconomic effectiveness of space investment critically depends on the prevailing monetary regime and financial conditions.