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Investment and the nominal interest rate: the variable velocity case

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  • Evan F. Koenig

Abstract

Models treating money either as a consumer good or as a producer good are encompassed by a model in which both households and firms use money as a buffer between receipts and expenditures. A rise in nominal interest rates increases resources devoted to intermediation, while discouraging purchases financed from accumulated cash. If investment is financed from contemporaneous earnings, there is a tendency to substitute out of consumption and into investment when interest rates are high. Greater resources devoted to intermediation generate a negative wealth effect. The net impact on investment is ambiguous. Copyright 1989 by Oxford University Press.
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Suggested Citation

  • Evan F. Koenig, 1988. "Investment and the nominal interest rate: the variable velocity case," Working Papers 8805, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:8805
    Note: Published as: Koenig, Evan F. (1989), "Investment and the Nominal Interest Rate: the Variable Velocity Case," Economic Inquiry 27 (2): 325-344.
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    Cited by:

    1. 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.
    2. Evan F. Koenig, 1990. "Real Money Balances and the Timing of Consumption: An Empirical Investigation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 399-425.
    3. 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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