Ownership of Capital in Monetary Economics and the Inflation Taxon Equity
International Monetary Fund, Dec 1, 1999 - Business & Economics - 44 pages
Financial instruments are subject to inflation taxes on the wealth they represent and on the nominal income flows they provide. This paper explicitly introduces financial instruments into the standard stochastic growth model with money and production and shows that the value of the firm in this case is equal to the firm’s capital stock divided by inflation. The resulting asset-pricing conditions indicate that the effect of inflation on asset returns differs from the effects found in other papers by the addition of a significant wealth tax.
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arbitrage condition arbitrage opportunities asset pricing model autocorrelation capital accumulation equation capital stock cash flows cash-in-advance commercial paper competitive equilibrium consumer’s problem consumption Cooley and Hansen demand for stocks difference equation dividend tax economy effect of inflation financial instruments financial markets firm ownership firm’s assets firm’s capital household Euler household ownership household’s Euler equation identical implies inflation shock intertemporal marginal rate Kt+1 Labadie marginal return Monetary Economies monetary shock no-arbitrage condition nominal dividends nominally-denominated optimal decisions optimal investment decision order difference equation ownership claims ownership decision ownership of capital ownership value perfect foresight model period physical capital purchase pure lease value rate of substitution rational bubble real dividends real stock price real stock returns real value retained earnings satisfied seven equations shopping time model simulate solve for equilibrium standard model stochastic discount factor stochastic growth model stochastic processes stocks and bonds tax on wealth third order difference two-equation system wealth tax