Inflation, human capital and Tobin’s q

Basu, Parantap, Gillman, Max and Pearlman, Joseph 2009. Inflation, human capital and Tobin’s q. [Working Paper]. Cardiff Economics Working Papers, Cardiff: Cardiff University.

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Abstract

A pervasive empirical finding for the US economy is that inflation is negatively correlated with the normalized market price of capital (Tobin's q) and growth. A dynamic stochastic general equilibrium model of endogenous growth is developed to explain these stylized facts. In this model, human capital is the principal driver of self-sustained growth. Long run comparative statics analysis suggests that inflation diverts scarce time resource to leisure which lowers human capital utilization. This impacts growth adversely and modulates capital adjustment cost downward resulting in a decline in Tobin's q. For the short run, a Tobin effect of inflation on growth weakens the negative association between inflation and q.

Item Type:	Monograph (Working Paper)
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HB Economic Theory
Publisher:	Cardiff University
Date of First Compliant Deposit:	30 March 2016
Last Modified:	06 Oct 2015 14:18
URI:	https://orca.cardiff.ac.uk/id/eprint/77829

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