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The Short-run 'Tobin Effect' in a Monetary Optimizing Model

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  • Koenig, Evan F

Abstract

In an economy in which households face a cash-in-advance constraint, the nominal interest rate acts like a tax on consumption. To the extent that investment is financed from current earnings and so escapes the interest rate tax, households will defer their consumption when the nominal interest rate is high. A short-run Tobin effect results: capital accumulates most rapidly when the interest rate is thought to be high relative to its past and future values. Copyright 1987 by Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 25 (1987)
Issue (Month): 1 (January)
Pages: 43-53

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Handle: RePEc:oup:ecinqu:v:25:y:1987:i:1:p:43-53

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Cited by:
  1. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1998. "Prospective Deficits and the Asian Currency Crisis," NBER Working Papers 6758, National Bureau of Economic Research, Inc.
  2. Joseph H. Haslag, 1995. "A comparison of alternative monetary environments," Working Papers 9511, Federal Reserve Bank of Dallas.
  3. Joseph H. Haslag, 1997. "Output, growth, welfare, and inflation: a survey," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 11-21.
  4. Koenig, Evan F, 1990. "Real Money Balances and the Timing of Consumption: An Empirical Investigation," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 399-425, May.
  5. Holman, Jill A. & Rioja, Felix K., 2001. "International transmission of anticipated inflation under alternative exchange-rate regimes," Journal of International Money and Finance, Elsevier, vol. 20(4), pages 497-519, August.

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