Abstract
This study investigates the long run interaction of inflation and real economic activity as traditionally addressed in the literature on money and growth. In a prominent contribution to this literature, Tobin (1965) arrives at the well-known result that one should expect inflation and economic activity to be positively correlated. Importantly, this so-called Tobin effect hinges critically on the assumption that money and capital enter the portfolios of agents as substitutes: with inflation acting like a tax on real balances, this assumption ensures that a more inflationary policy induces a portfolio shift from money to capital, thereby leading to a higher level of overall activity. More recently, however, empirical and theoretical studies have challenged this view.
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© 1999 Springer-Verlag Berlin Heidelberg
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von Thadden, L. (1999). Summary. In: Money, Inflation, and Capital Formation. Lecture Notes in Economics and Mathematical Systems, vol 479. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-58556-2_11
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DOI: https://doi.org/10.1007/978-3-642-58556-2_11
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-540-66456-7
Online ISBN: 978-3-642-58556-2
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