View source for Mundell–Tobin effect

The '''Mundell–Tobin effect''' suggests that [[nominal interest rate]]s 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.<ref>{{Cite journal |last=Mundell |first=R. |year=1963 |title=Inflation and Real Interest |journal=[[Journal of Political Economy]] |volume=71 |issue=3 |pages=280–283 |doi=10.1086/258771 }}</ref> A similar argument was introduced by economist [[James Tobin]].<ref>{{Cite journal |last=Tobin |first=J. |year=1965 |title=Money and Economic Growth |journal=[[Econometrica]] |volume=33 |issue=4 |pages=671–684 |doi=10.2307/1910352 |jstor=1910352 }}</ref>

==See also==
*[[Solow–Swan model]]

==References==
{{Reflist}}

{{DEFAULTSORT:Mundell-Tobin effect}}
[[Category:Inflation]]


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