Inflation and investment

What is the relationship between inflation and investment? Conventional wisdom says that businesses adjust their investment spending according to changes to the cost of capital. Intuitively, that makes sense: more projects become worthwhile as funding costs go down, while few make the cut when capital is expensive. (In reality, it turns out that interest rates, spreads, and volatility are all irrelevant for capex decisions, but let’s put that aside for now.) If central bankers want to boost investment to encourage economic activity, conventional theory suggests they should lower interest rates. However,…