Inflation and the Capital Stock
AbstractThere is a long literature examining the theoretical relationship between the rate of inflation and the size of the capital stock in an economy. This literature has produced varied predictions about the effects of inflation on the capital stock. In this paper we present some time series evidence on this issue. We estimate a structural VAR model for thirty-four countries and discover that for the majority of these countries there is no statistically significant long run effect of inflation on the capital stock. Moreover, for countries where a significant effect is found, the long run coefficient estimate is typically positive. Overall, our empirical results support the view that the long run level of the capital stock is invariant to permanent changes in the inflation rate.
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Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 32 (2000)
Issue (Month): 2 (May)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879
Other versions of this item:
- E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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- Rapach, David E., 2002. "The long-run relationship between inflation and real stock prices," Journal of Macroeconomics, Elsevier, vol. 24(3), pages 331-351, September.
- John Keating, 2004. "Interpreting Permanent and Transitory Shocks to Output When Aggregate Demand May Not Be Neutral in the Long-run," Econometric Society 2004 North American Summer Meetings 608, Econometric Society.
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- Faria, João Ricardo & Mollick, André Varella & Sachsida, Adolfo & Wang, Le, 2012. "Do central banks affect Tobin's q?," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 1-10.
- O'Reilly, B., 1998. "The Benefits of Low Inflation: Taking Shock "A nickel ain't worth a dime any more" [Yogi Berra]," Technical Reports 83, Bank of Canada.
- James Bullard, 1999. "Testing long-run monetary neutrality propositions: lessons from the recent research," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 57-77.
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