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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.
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