The Federal Reserve Board eagle logo links to home page

International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Long-Term Evidence on the Tobin and Fisher Effects: A New Approach
Shaghil Ahmed and John H. Rogers

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.

Full paper (4072 KB PDF)

PDF files: Adobe Acrobat Reader   ZIP files: PKWARE

Home | IFDPs | List of 1996 IFDPs
To comment on this site, please fill out our feedback form.
Last update: July 19, 2001