Inflation and corporate investment – a critical survey

Piotr Ciżkowicz (), Marcin Hołda and Andrzej Rzońca

Bank i Kredyt, 2010, vol. 41, issue 6, 5-44

Abstract: The analysis of inflation’s effect on investment can contribute to a deeper understanding of the benefits of a monetary policy oriented towards price stability. It can also help conduct such a policy effectively. We begin with a review of conclusions about the inflation-investment relationship that can be drawn from traditional monetary models with exogenous growth and no market imperfections. As these conclusions are ambiguous, models of this type could lead economic decision-makers to fail to take proper account of inflation’s impact on investment. We then survey research which, contrary to monetary exogenous growth models, takes account of market imperfections such as the asymmetry of information, uncertainty and nominal rigidities in the tax system. The analysis of the significance of these imperfections for the direction and magnitude of the relationship between inflation and investment forms the bulk of the article. We highlight, on the one hand, the key assumptions of the particular theories (and whether they are in keeping with stylized facts), and, on the other hand, the difficulties that empirical research faces when trying to verify the conclusions from these theories. Finally, we offer some conclusions on the basis of the conducted survey.

Keywords: investment; inflation; monetary growth models; asymmetry of information; uncertainty; taxes (search for similar items in EconPapers)
JEL-codes: D81 D82 E22 E31 E44 E52 O42 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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