Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/108184
Authors: 
Basu, Parantap
Gillman, Max
Pearlman, Joseph
Year of Publication: 
2010
Series/Report no.: 
IEHAS Discussion Papers MT-DP - 2010/17
Abstract: 
A less well-known empirical finding for the US and UK is a pronounced low frequency negative relationship between inflation and Tobin's q; a normalized market price of capital. This stylized fact is explained within a dynamic stochastic general equilibrium model using three key features: (i) a Lucas and Prescott (1971) physical capital adjustment cost with a rising marginal cost of investment, (ii) production of human capital with endogenous growth and (iii) an inflation tax cash-in-advance economy. The baseline endogenous growth model matches the US inflation and q long term correlation, while comparable exogenous growth are unable to do this, and it outperforms the exogenous growth models in explaining business cycle volatilities of q and of stock returns.
Subjects: 
Low frequency
Tobin's q
inflation tax
endogenous growth
JEL: 
E31
E44
G12
ISBN: 
978-615-5024-08-5
Document Type: 
Working Paper

Files in This Item:
File
Size
353.14 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.