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Inflation, Investment and Growth: a Money and Banking Approach

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Author Info
Max Gillman () (Cardiff Business School Cardiff University, Research Associate, Institute of Economics Hungarian Academy of Sciences)
Michal Kejak () (The Center for Economic Research and Graduate Education of Charles University (CERGE EI))

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Abstract

Output growth, investment and the real interest rate in long run evidence tend to be negatively affected by inflation. Theoretically, inflation acts as a human capital tax that decreases output growth and the real interest rate, but increases the investment rate, opposite of evidence. The paper resolves this puzzle by requiring exchange for investment as well as consumption. Inflation then decreases the investment rate, and still decreases both output growth and real interest up to some moderately high rate of inflation, above which increasingly low investment finally causes capital to fall relative to labor, and the real interest rate to rise.

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Publisher Info
Paper provided by Institute of Economics, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 0911.

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Length: 40 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:has:discpr:0911

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Related research
Keywords: inflation; investment; growth; Tobin;

Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O42 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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Cited by:
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  1. Aleksander Berentsen & Mariana Rojas Breu & Shouyong Shi, 2009. "Liquidity, innovation and growth," IEW - Working Papers iewwp441, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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This page was last updated on 2009-11-25.

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