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Capital Trading, Stock Trading, and the Inflation Tax on Equity

Author

Listed:
  • Ralph Chami

    (IMF Institute)

  • Thomas F. Cosimano

    (University of Notre Dame)

  • Connel Fullenkamp

    (Duke University)

Abstract

A market for used capital goods, or financial instruments that represent the ownership of the used capital goods, induces inflation taxes on wealth and on the nominal income flows they provide. This paper explicitly introduces trading in either used capital goods or financial instruments into the standard stochastic growth model with money and production. These two monetary economies are equivalent. The value of the firm is equal to the firm's capital stock divided by inflation. The resulting asset pricing conditions indicate that the effect of inflation on asset returns differs from the effects found in the literature by the addition of a significant wealth tax. (Copyright: Elsevier)

Suggested Citation

  • Ralph Chami & Thomas F. Cosimano & Connel Fullenkamp, 2001. "Capital Trading, Stock Trading, and the Inflation Tax on Equity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 575-606, July.
  • Handle: RePEc:red:issued:v:4:y:2001:i:3:p:575-606
    DOI: 10.1006/redy.2001.0129
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Scott Baier & Charles T. Carlstrom & Ralph Chami & Thomas Cosimano & Timothy Fuerst & Connel Fullenkamp, 2003. "Capital Trading, Stock Trading, and the Inflation Tax on Equity: A Note," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 987-990, October.
    2. Ghossoub, Edgar A. & Reed, Robert R., 2014. "The cost of capital, asset prices, and the effects of monetary policy," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 211-228.

    More about this item

    Keywords

    Inflation tax; Asset returns; used capital; Stock market.;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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