Mundell-Tobin Effect

Robert Mundell

Mundell has made renowned contributions to macroeconomic theory. In Inflation and Real Interest(1963), he has shown that higher inflation can induce investors to lower their cash balances in favor of increased real capital formation.

As a result, even expected inflation has real economic effects. A similar argument was introduced by 1981 economics laureate James Tobin.

Accordingly, this effect of inflation has been labeled the Mundell-Tobin effect.