Long-Term Evidence on the Tobin and Fisher Effects: A New Approach

Board of Governors of the Federal Reserve System Int'l Finance Disc. Paper No. 566

45 Pages Posted: 4 Nov 1996

See all articles by Shaghil Ahmed

Shaghil Ahmed

Board of Governors of the Federal Reserve System

John H. Rogers

Board of Governors of the Federal Reserve System - Trade and Financial Studies Section

Date Written: September 1996

Abstract

Using a new approach, we reexamine the empirical evidence on the long-term interactions between inflation and real variables. We find, using over 100 years of U.S. data, that in the long run the effect of inflation on investment and output is positive (a "Tobin type effect") and the investment rate, and hence the real interest rate, are not independent of inflation. However, over the full sample at least, the variability of the innovations to the stochastic inflation trend is small relative to the variability of the innovations to the productivity and fiscal trends. We conclude that models generating a reverse-Tobin effect, including standard real-business-cycle and endogenous growth models that incorporate money, may not be the best models for understanding the long-term real effects of inflation.

JEL Classification: E2, E3, O4

Suggested Citation

Ahmed, Shaghil and Rogers, John H., Long-Term Evidence on the Tobin and Fisher Effects: A New Approach (September 1996). Board of Governors of the Federal Reserve System Int'l Finance Disc. Paper No. 566. Available at SSRN: https://ssrn.com/abstract=1300 or http://dx.doi.org/10.2139/ssrn.1300

Shaghil Ahmed (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC
United States

John H. Rogers

Board of Governors of the Federal Reserve System - Trade and Financial Studies Section ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2873 (Phone)
202-736-5638 (Fax)

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