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Inflation and the Capital Stock

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Author Info

  • Crosby, Mark
  • Otto, Glenn

Abstract

There 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 Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 32 (2000)
Issue (Month): 2 (May)
Pages: 236-53

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Handle: RePEc:mcb:jmoncb:v:32:y:2000:i:2:p:236-53

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. 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.
  2. 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.
  3. Dearmon, Jacob & Grier, Robin, 2011. "Trust and the accumulation of physical and human capital," European Journal of Political Economy, Elsevier, vol. 27(3), pages 507-519, September.
  4. 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.
  5. 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.
  6. 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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