The Mundell–Tobin effect suggests that nominal interest rates would rise less than one-for-one with inflation because in response to inflation the public would hold less in money balances and more in other assets, which would drive interest rates down. In other words, an increase in the exogenous growth rate of money increases the nominal interest rate and velocity of money, but decreases the real interest rate. The importance of the Mundell–Tobin effect is in that it appears as a deviation from the classical dichotomy. Robert Mundell was the first to show expected inflation has real economic effects.[1] A similar argument was introduced by economist James Tobin.[2]
mundell, tobin, effect, suggests, that, nominal, interest, rates, would, rise, less, than, with, inflation, because, response, inflation, public, would, hold, less, money, balances, more, other, assets, which, would, drive, interest, rates, down, other, words,. The Mundell Tobin effect suggests that nominal interest rates would rise less than one for one with inflation because in response to inflation the public would hold less in money balances and more in other assets which would drive interest rates down In other words an increase in the exogenous growth rate of money increases the nominal interest rate and velocity of money but decreases the real interest rate The importance of the Mundell Tobin effect is in that it appears as a deviation from the classical dichotomy Robert Mundell was the first to show expected inflation has real economic effects 1 A similar argument was introduced by economist James Tobin 2 See also editSolow Swan modelReferences edit Mundell R 1963 Inflation and Real Interest Journal of Political Economy 71 3 280 283 doi 10 1086 258771 Tobin J 1965 Money and Economic Growth Econometrica 33 4 671 684 doi 10 2307 1910352 JSTOR 1910352 nbsp This economics related article is a stub You can help Wikipedia by expanding it vte Retrieved from https en wikipedia org w index php title Mundell Tobin effect amp oldid 795813730, wikipedia, wiki, book, books, library,
