Article ID Journal Published Year Pages File Type
5098787 Journal of Economic Dynamics and Control 2012 18 Pages PDF
Abstract
A strong US postwar low frequency negative correlation exists between inflation and Tobin's q. To explain this, a production-based monetary asset pricing model is formulated with a rising marginal cost of investment, cash-in-advance and human capital based endogenous growth. Higher money supply growth causes higher inflation, lower output growth, and a lower q in the long run. The baseline model simulates well correlations of the US inflation rate and Tobin's q at each frequency of high, business cycle, low, and the “medium term.” It also performs well in correlations and volatilities compared to related exogenous growth versions.
Related Topics
Physical Sciences and Engineering Mathematics Control and Optimization
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