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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.

Suggested Citation

  • Koenig, Evan F, 1987. "The Short-run 'Tobin Effect' in a Monetary Optimizing Model," Economic Inquiry, Western Economic Association International, vol. 25(1), pages 43-53, January.
    • Handle: RePEc:oup:ecinqu:v:25:y:1987:i:1:p:43-53
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    Cited by:

    1. Joseph H. Haslag, 1995. "A comparison of alternative monetary environments," Working Papers 9511, Federal Reserve Bank of Dallas.
    2. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2001. "Prospective Deficits and the Asian Currency Crisis," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1155-1197, December.
    3. 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.
    4. 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.
    5. Wu, Yangru & Zhang, Junxi, 1998. "Endogenous growth and the welfare costs of inflation: a reconsideration," Journal of Economic Dynamics and Control, Elsevier, vol. 22(3), pages 465-482, March.

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