Politics, Inflation, and the Mundell-Tobin Effect

Abstract

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 instrun1enting with an extensive set of political stability and regime variables, I have shown that within alower range of inflation rates, between 5% and 9%, this correlation is positive, highly significant, and shows no signs of reverse causality (EO, ES).