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Title:Inflation, investment and growth: A money and banking approach PDF Logo
Authors:Gillman, Max
Kejak, Michal
Issue Date:2008
Series/Report no.:Cardiff Economics Working Papers E2008/18
Abstract:Output growth, investment and the real interest rate are all found empirically to be negatively affected by inflation. But a seeming puzzle arises of opposite Tobin-like inflation effects because theory indicates a negative Tobin effect when investment falls and a positive Tobin effect when the real interest rate rises. We define inflation's Tobin effect more specifically in terms of the effect on the capital to effective labor ratio and resolve the puzzle by showing the simultaneous occurrence of all three negative inflation effects, on growth, investment and real interest rates, in a model calibrated to postwar US data. Here, investment along with consumption are exchanged for within a monetary endogenous growth economy with human capital and a decentralized credit-producing sector.
Subjects:inflation
investment
growth
Tobin
JEL:C23
E44
O16
O42
Document Type:Working Paper
Appears in Collections:Cardiff Economics Working Papers, Cardiff Business School, Cardiff University

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