nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2008‒08‒21
one paper chosen by
Iulia Igescu
Global Insight, GmbH

  1. Inflation, Investment and Growth: a Banking Approach By Gillman, Max; Kejak, Michal

  1. By: Gillman, Max (Cardiff Business School); Kejak, Michal
    Abstract: Investment and growth are found empirically to be negatively affected by inflation. Yet evidence also supports a positive Tobin effect whereby greater capital intensities and lower real interest rates result. The negative investment and positive capital intensity effects appear hard to reconcile. We present a model with both effects by requiring investment to be exchanged for, rather than frictionlessly being acquired, so that an inflation tax lowers investment but still induces a reallocation of factor inputs from labor towards capital. Thereby the economy captures the investment, Tobin and growth effects simultaneously.
    Keywords: Inflation; investment; growth; Tobin
    JEL: C23 E44 O16 O42
    Date: 2008–08

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