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Inflation, human capital and Tobin's q

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  • Basu, Parantap
  • Gillman, Max
  • Pearlman, Joseph

Abstract

A strong US postwar low frequency negative correlation exists between inflation and Tobin's q. To explain this, a production-based monetary asset pricing model is formulated with a rising marginal cost of investment, cash-in-advance and human capital based endogenous growth. Higher money supply growth causes higher inflation, lower output growth, and a lower q in the long run. The baseline model simulates well correlations of the US inflation rate and Tobin's q at each frequency of high, business cycle, low, and the “medium term.” It also performs well in correlations and volatilities compared to related exogenous growth versions.

Suggested Citation

  • Basu, Parantap & Gillman, Max & Pearlman, Joseph, 2012. "Inflation, human capital and Tobin's q," Journal of Economic Dynamics and Control, Elsevier, vol. 36(7), pages 1057-1074.
  • Handle: RePEc:eee:dyncon:v:36:y:2012:i:7:p:1057-1074
    DOI: 10.1016/j.jedc.2012.02.004
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    References listed on IDEAS

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    Cited by:

    1. Augustin Kwasi Fosu & Yoseph Getachew & Thomas H.W. Ziesemer, 2014. "Optimal Public Investment, Growth, and Consumption: Fresh Evidence from African Countries," Working Papers 201464, University of Pretoria, Department of Economics.
    2. Laszlo A. Koczy & Martin Strobel, 2010. "The World Cup of Economics Journals: A Ranking by a Tournament Method," IEHAS Discussion Papers 1018, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
    3. Basu, Parantap & Getachew, Yoseph, 2015. "An adjustment cost model of social mobility," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 177-190.
    4. Yoseph Yilma Getachew & Keshab Bhattarai & Parantap Basu, 2012. "Capital adjustment cost and bias in income based dynamic panel models with fixed effects," Working Papers 2012_07, Durham University Business School.
    5. Parantap Basu, 2014. "Quantitative Easing in an Endogenous Growth Model," CEGAP Working Papers 2014_01, Durham University Business School.
    6. Basu, Parantap & Bhattarai, Keshab, 2011. "Government bias in education, schooling attainment and growth," MPRA Paper 31791, University Library of Munich, Germany.

    More about this item

    Keywords

    Tobin's q; Low frequency; Endogenous growth;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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