Inflation, Investment and Growth: A Money and Banking Approach

23 Pages Posted: 16 Mar 2011

See all articles by Max Gillman

Max Gillman

Central European University (CEU) - Department of Economics

Michal Kejak

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Date Written: March 14, 2011

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, opposing evidence. This 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 labour, and the real interest rate to rise.

Suggested Citation

Gillman, Max and Kejak, Michal, Inflation, Investment and Growth: A Money and Banking Approach (March 14, 2011). Economica, Vol. 78, Issue 310, pp. 260-282, 2011, Available at SSRN: https://ssrn.com/abstract=1786229 or http://dx.doi.org/10.1111/j.1468-0335.2009.00814.x

Max Gillman

Central European University (CEU) - Department of Economics ( email )

Nador u. 9.
Budapest H-1051
Hungary
+36 1 327 3227 (Phone)
+36 1 327 3232 (Fax)

Michal Kejak

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

Politickych veznu 7
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

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