Mundell–Tobin effect

Mundell–Tobin effect is the fall in the real interest rate that results when an increase in expected inflation raises the nominal interest rate, lowers real money balances and real wealth, and thereby reduces consumption and raises saving.

Definition

According to Macroeconomics by Mankiw (7th edition),

Mundell–Tobin effect. The fall in the real interest rate that results when an increase in expected inflation raises the nominal interest rate, lowers real money balances and real wealth, and thereby reduces consumption and raises saving.