Inflation, Investment and Growth: a Money and Banking Approach

Max Gillman () and Michal Kejak ()
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Michal Kejak: The Center for Economic Research and Graduate Education of Charles University (CERGE EI)

No 911, IEHAS Discussion Papers from Institute of Economics, Hungarian Academy of Sciences

Abstract: Output growth, investment and the real interest rate in long run evidence tend to be negatively affected by inflation. Theoretically, inflation acts as a human capital tax that decreases output growth and the real interest rate, but increases the investment rate, opposite of evidence. The paper resolves this puzzle by requiring exchange for investment as well as consumption. Inflation then decreases the investment rate, and still decreases both output growth and real interest up to some moderately high rate of inflation, above which increasingly low investment finally causes capital to fall relative to labor, and the real interest rate to rise.

Keywords: inflation; investment; growth; Tobin (search for similar items in EconPapers)
JEL-codes: C23 E44 O16 O42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2009-06
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Persistent link: http://EconPapers.repec.org/RePEc:has:discpr:0911

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