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Politics, Inflation, and the Mundell-Tobin Effect

Edwards, Jeffrey A. (2006): Politics, Inflation, and the Mundell-Tobin Effect. Published in: Journal of Economics (MVEA) , Vol. 32, No. 2 (2006)


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This paper addresses the possibility of a correlation between inflation and investment for countries with inflation below 20%. The existing literature typically finds no correlation below this level of inflation. By instrumenting with an extensive set of political stability and regime variables I have shown that within a lower range of inflation rates, between 5% and 9%, this correlation is positive, highly significant, and shows no signs of reverse causality.

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