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


  • Koenig, Evan F


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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    References listed on IDEAS

    1. J. Michael Harrison & William F. Sharpe, 1983. "Optimal Funding and Asset Allocation Rules for Defined-Benefit Pension Plans," NBER Chapters,in: Financial Aspects of the United States Pension System, pages 91-106 National Bureau of Economic Research, Inc.
    2. James L. Medoff & Katharine G. Abraham, 1981. "Are Those Paid More Really More Productive? The Case of Experience," Journal of Human Resources, University of Wisconsin Press, vol. 16(2), pages 186-216.
    3. Jeremy I. Bulow & Myron S. Scholes, 1983. "Who Owns the Assets in a Defined-Benefit Pension Plan?," NBER Chapters,in: Financial Aspects of the United States Pension System, pages 17-36 National Bureau of Economic Research, Inc.
    4. Pesando, James E, 1982. " Investment Risk, Bankruptcy Risk, and Pension Reform in Canada," Journal of Finance, American Finance Association, vol. 37(3), pages 741-749, June.
    5. Martin Feldstein & Randall Morck, 1983. "Pension Funding Decisions, Interest Rate Assumptions, and Share Prices," NBER Chapters,in: Financial Aspects of the United States Pension System, pages 177-210 National Bureau of Economic Research, Inc.
    6. Zvi Bodie & John B. Shoven, 1983. "Financial Aspects of the United States Pension System," NBER Books, National Bureau of Economic Research, Inc, number bodi83-1, January.
    7. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    8. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-620, September.
    9. Jeremy I. Bulow, 1981. "Early Retirement Pension Benefits," NBER Working Papers 0654, National Bureau of Economic Research, Inc.
    10. Ippolito, Richard A, 1985. "The Economic Function of Underfunded Pension Plans," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 611-651, October.
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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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