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Inflation, Uncertainty, and Investment
Author(s) -
BALDWIN CARLISS Y.,
RUBACK RICHARD S.
Publication year - 1986
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1986.tb04528.x
Subject(s) - depreciation (economics) , economics , inflation (cosmology) , monetary economics , fixed asset , consumption of fixed capital , book value , value (mathematics) , asset (computer security) , investment (military) , financial economics , microeconomics , finance , production (economics) , profit (economics) , physics , machine learning , financial capital , theoretical physics , computer science , politics , political science , law , capital formation , computer security , earnings
This paper investigates the effect of inflation on a firm's investments in fixed assets. When future prices are certain, inflation affects the present value of depreciation tax shields, and the impact of inflation on the choice between different lived assets is nonmonotonic. Future asset price uncertainty creates a valuable switching option and benefits shorter‐lived assets.