NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Darrel Cohen

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January 1999Inflation and the User Cost of Capital: Does Inflation Still Matter?
with Kevin Hassett, R. Glenn Hubbard
in The Costs and Benefits of Price Stability, Martin Feldstein, editor
May 1997Inflation and the User Cost of Capital: Does Inflation Still Matter?
with Kevin A. Hassett, R. Glenn Hubbard: w6046
In the late 1970s, many economists argued that the deleterious effects of inflation on the user cost of capital for U.S. firms were large. Since that time, the tax code has changed, the level of inflation has dropped significantly, and the of investment has evolved considerably. In this paper, we demonstrate that the net effect of these changes has--under reasonable assumptions--not relegated inflation to the sidelines. Indeed, we conclude that: (1) inflation, even at its relatively low current rates, continues to increase the user cost of capital significantly; (2) the marginal gain in investment in response to a percentage-point reduction in inflation is larger for lower levels of inflation; (3) the beneficial effects for steady-state consumption of lowering inflation even further than...

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Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
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