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Inflation Aversion and the Growth-Inflation Relationship

Author

Listed:
  • Rangan Gupta

    (Department of Economics, University of Pretoria)

  • Philton Makena

    (Department of Economics, University of Pretoria)

Abstract

This paper re-examines the theoretical relationship between inflation and output growth by introducing inflation aversion in a standard overlapping generations monetary endogenous growth model with productive public expenditure. We show that when the time preference parameter is a negative function of expected money growth rate, then the theoretical growth-inflation relationship that emerges is "hump-shaped". This finding is consistent with recent empirical literature.

Suggested Citation

  • Rangan Gupta & Philton Makena, 2019. "Inflation Aversion and the Growth-Inflation Relationship," Annals of Economics and Finance, Society for AEF, vol. 20(2), pages 803-815, November.
    • Handle: RePEc:cuf:journl:y:2019:v:20:i:2:guptamakena
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    References listed on IDEAS

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    1. By Mohsin S. Khan & Abdelhak S. Senhadji, 2001. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1-1.
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    6. Omay, Tolga & Öznur Kan, Elif, 2010. "Re-examining the threshold effects in the inflation-growth nexus with cross-sectionally dependent non-linear panel: Evidence from six industrialized economies," Economic Modelling, Elsevier, vol. 27(5), pages 996-1005, September.
    7. Arawatari, Ryo & Hori, Takeo & Mino, Kazuo, 2018. "On the nonlinear relationship between inflation and growth: A theoretical exposition," Journal of Monetary Economics, Elsevier, vol. 94(C), pages 79-93.
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    9. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    10. Shu-Hua Chen, 2015. "Fiscal and Monetary Policies in a Transactions-Based Endogenous Growth Model with Imperfect Competition," The Japanese Economic Review, Japanese Economic Association, vol. 66(1), pages 89-111, March.
    11. Tolga Omay & Reneé Eyden & Rangan Gupta, 2018. "Inflation–growth nexus: evidence from a pooled CCE multiple-regime panel smooth transition model," Empirical Economics, Springer, vol. 54(3), pages 913-944, May.
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    Cited by:

    1. Biškupec Petra Popek & Ružić Ivan, 2023. "Confronting the Inflationary Pressures of Introducing the Euro with the Effects of Negative External Shocks," Folia Oeconomica Stetinensia, Sciendo, vol. 23(1), pages 194-207, June.

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    More about this item

    Keywords

    Inflation; Inflation Aversion; Endogenous Growth;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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