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Politics, Inflation, and the Mundell-Tobin Effect

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Listed author(s):
  • Jeffrey Edwards

    (North Carolina A&T University)

Abstract

This paper addresses the possibility of a correlation between inflation and investment for countries with inflation below 20%. The existing literature typically finds no correlation below this level of inflation. By instrumenting with an extensive set of political stability and regime variables, I have shown that within a lower range of inflation rates, between 5% and 9%, this correlation is positive, highly significant, and shows no signs of reverse causality.

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Article provided by Missouri Valley Economic Association in its journal The Journal of Economics.

Volume (Year): 32 (2006)
Issue (Month): 2 ()
Pages: 9-30

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Handle: RePEc:mve:journl:v:32:y:2006:i:2:p:9-30
Contact details of provider: Web page: http://www.mvea.net

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Find related papers by JEL classification:
  • E0 - Macroeconomics and Monetary Economics - - General
  • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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  1. Robert J. Barro, 1998. "Determinants of Economic Growth: A Cross-Country Empirical Study," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522543, July.
  2. Cukierman, Alex & Kalaitzidakis, Pantelis & Summers, Lawrence H. & Webb, Steven B., 1993. "Central bank independence, growth, investment, and real rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 95-140, December.
  3. Joshua Greene & Delano Villanueva, 1991. "Private Investment in Developing Countries: An Empirical Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 38(1), pages 33-58, March.
  4. Ahmed, Shaghil & Rogers, John H., 2000. "Inflation and the great ratios: Long term evidence from the U.S," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 3-35, February.
  5. David Romer, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 869-903.
  6. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
  7. Allen, Stuart D, 1986. "The Federal Reserve and the Electoral Cycle: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(1), pages 88-94, February.
  8. William Martin & Robert Rowthorn, 2004. "Will Stability Last?," CESifo Working Paper Series 1324, CESifo Group Munich.
  9. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, April.
  10. Banaian, King & Luksetich, William A, 2001. "Central Bank Independence, Economic Freedom, and Inflation Rates," Economic Inquiry, Western Economic Association International, vol. 39(1), pages 149-161, January.
  11. Davis, George & Kanago, Bryce, 1996. "On Measuring the Effect of Inflation Uncertainty on Real GNP Growth," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 163-175, January.
  12. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
  13. Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, vol. 71, pages 280-280.
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