1999 | OriginalPaper | Chapter
Summary of the literature: theoretical aspects
Author : Dr. Leopold von Thadden
Published in: Money, Inflation, and Capital Formation
Publisher: Springer Berlin Heidelberg
Included in: Professional Book Archive
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Modern analysis of the long run interaction of inflation and capital formation begins with Tobin’s seminal contribution in 1965. Presenting a monetary version of Solow’s growth model, Tobin (1965) considers a closed economy in which ‘outside money’ competes with real capital in the portfolios of agents. As a matter of definition, outside money is the part of the money stock which is issued by the government. Correspondingly, it represents, according to Tobin (1965), “…neither a commodity produced by the economy nor the debts of private individuals or institutions.”1 Moreover, “…its own-yield (i.e. the amount of the asset that is earned by holding a unit of the asset a given period of time) is arbitrarily fixed by the government. This may, of course, be zero but it is not necessarily so.”2