A Revised Tobin Effect from Inflation: Relative Input Price and Capital Ratio Realignments, USA and UK, 1959-1999

The paper studies the realignments induced by inflation within an endogenous growth monetary economy. Accelerating inflation raises the ratio of the real wage to the real interest rate, and so raises the use of physical capital relative to human capital across all sectors. We find cointegration evidence for the US and UK economies consistent with a general equilibrium, Tobin-type, effect of inflation on input prices and capital intensity, even while the growth rate of output is reduced by inflation. Copyright The London School of Economics and Political Science 2003.