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Inflation and Asset Life: The Darby versus the Fisher Effect

Published online by Cambridge University Press:  06 April 2009

Keith M. Howe  and
Harvey Lapan
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Abstract

Our paper extends prior work on abandonment and replacement policies by analyzing the effects of both the Darby and the Fisher interest rate hypotheses. In most of the new cases developed, the effect of increased inflation on economic life is ambiguous. In the abandonment problem, we find a greater tendency under the Fisher hypothesis than under the Darby hypothesis for increased inflation to result in an extension of economic life. In contrast, for the replacement problem, there is a greater tendency under the Fisher hypothesis (than under Darby) for inflation to shorten the asset holding period.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 22 , Issue 2 , June 1987 , pp. 249 - 258
Copyright
Copyright © School of Business Administration, University of Washington 1987

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