A Revised Tobin Effect from Inflation: Relative Input Price and Capital Ratio Realignments, USA and UK, 1959-1999

Posted: 7 Dec 2004

See all articles by Max Gillman

Max Gillman

Central European University (CEU) - Department of Economics

Anton Nakov

CEPR; European Central Bank (ECB)

Abstract

The paper studies the realignments induced by inflation within an endogenous growth monetary economy. Accelerating inflation raises the ratio of the real wage to the real interest rate, and so raises the use of physical capital relative to human capital across all sectors. We find cointegration evidence for the US and UK economies consistent with a general equilibrium, Tobin-type, effect of inflation on input prices and capital intensity, even while the growth rate of output is reduced by inflation.

Suggested Citation

Gillman, Max and Nakov, Anton A., A Revised Tobin Effect from Inflation: Relative Input Price and Capital Ratio Realignments, USA and UK, 1959-1999. Available at SSRN: https://ssrn.com/abstract=629622

Max Gillman (Contact Author)

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)

Anton A. Nakov

CEPR ( email )

London
United Kingdom

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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