IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v13y2025i2p31-d1579695.html
   My bibliography  Save this article

Examining Impact of Inflation and Inflation Volatility on Economic Growth: Evidence from European Union Economies

Author

Listed:
  • Anastasios Pappas

    (Hellenic Fiscal Council, Greece and Department of Economics, National and Kapodistrian University of Athens, 15772 Athens, Greece)

  • Nikolaos Boukas

    (Center for Sustainable Management for Tourism, Sport and Events (CESMATSE), European University Cyprus, Nicosia 22006, Cyprus)

Abstract

Examining the economies of the European Union from 2000 to 2023, we have found no strong evidence that the inflation rate has a negative impact on economic growth. In contrast, in line with conventional economic theory, higher interest rates are associated with lower economic growth. The results remain consistent even after controlling for various control variables, non-linearities and endogeneity issues. These findings suggest that an aggressive tightening of monetary policy in the euro area, aimed at rapidly bringing inflation under control, could actually be detrimental to economic growth. Since the negative effects of monetary tightening on growth are clear, while the benefits of rapidly reducing inflation on economic growth are ambiguous, the European Central Bank must be cautious about both the intensity and the duration of monetary tightening.

Suggested Citation

  • Anastasios Pappas & Nikolaos Boukas, 2025. "Examining Impact of Inflation and Inflation Volatility on Economic Growth: Evidence from European Union Economies," Economies, MDPI, vol. 13(2), pages 1-18, January.
    • Handle: RePEc:gam:jecomi:v:13:y:2025:i:2:p:31-:d:1579695
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7099/13/2/31/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7099/13/2/31/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nicholas Apergis, 2005. "Inflation Uncertainty And Growth: Evidence From Panel Data," Australian Economic Papers, Wiley Blackwell, vol. 44(2), pages 186-197, June.
    2. Levine, Ross & Zervos, Sara J, 1993. "What We Have Learned about Policy and Growth from Cross-Country Regressions?," American Economic Review, American Economic Association, vol. 83(2), pages 426-430, May.
    3. Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531, December.
    4. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
    5. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
    6. Laurence M. Ball, 2014. "The Case for a Long-Run Inflation Target of Four Percent," IMF Working Papers 2014/092, International Monetary Fund.
    7. Robert J. Barro, 2003. "Determinants of Economic Growth in a Panel of Countries," Annals of Economics and Finance, Society for AEF, vol. 4(2), pages 231-274, November.
    8. Emi Nakamura & Jón Steinsson & Patrick Sun & Daniel Villar, 2018. "The Elusive Costs of Inflation: Price Dispersion during the U.S. Great Inflation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(4), pages 1933-1980.
    9. Sala-i-Martin, Xavier, 1997. "I Just Ran Two Million Regressions," American Economic Review, American Economic Association, vol. 87(2), pages 178-183, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tausch, Arno, 2016. "‘Smart development’. An essay on a new political economy of the environment," MPRA Paper 70204, University Library of Munich, Germany.
    2. Arno Tausch & Almas Heshmati, 2012. "Migration, Openness and the Global Preconditions of "Smart Development"," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 26(2), pages 1-62.
    3. Tausch, Arno, 2015. "Globalization, the environment and the future “greening” of Arab politics," MPRA Paper 64511, University Library of Munich, Germany.
    4. Andersson, Björn, 1999. "On the Causality Between Saving and Growth: Long- and Short-Run Dynamics and Country Heterogeneity," Working Paper Series 1999:18, Uppsala University, Department of Economics.
    5. Folster, Stefan & Henrekson, Magnus, 2001. "Growth effects of government expenditure and taxation in rich countries," European Economic Review, Elsevier, vol. 45(8), pages 1501-1520, August.
    6. Mark F. J. Steel, 2020. "Model Averaging and Its Use in Economics," Journal of Economic Literature, American Economic Association, vol. 58(3), pages 644-719, September.
    7. Bayraktar-Sağlam, Bahar & Yetkiner, Hakan, 2014. "A Romerian contribution to the empirics of economic growth," Journal of Policy Modeling, Elsevier, vol. 36(2), pages 257-272.
    8. Celal Kucuker, 2003. "Türkiye Ýktisat Kongresi Büyüme Stratejileri Çalýþma Grubu," Working Papers 2003/5, Turkish Economic Association.
    9. Chen, Sheng-Syan & Chen, Hsien-Yi & Chang, Chong-Chuo & Yang, Shu-Ling, 2016. "The relation between sovereign credit rating revisions and economic growth," Journal of Banking & Finance, Elsevier, vol. 64(C), pages 90-100.
    10. Tausch, Arno, 2011. "The ‘four economic freedoms’ and life quality. General tendencies and some hard lessons for EU-27-Europe," MPRA Paper 33225, University Library of Munich, Germany.
    11. Ali, Amjad & Ur Rehman, Hafeez, 2015. "Macroeconomic Instability and Its Impact on Gross Domestic Product: An Empirical Analysis of Pakistan," MPRA Paper 71037, University Library of Munich, Germany.
    12. Rajeev K. Goel & James W. Saunoris & Friedrich Schneider, 2019. "Growth In The Shadows: Effect Of The Shadow Economy On U.S. Economic Growth Over More Than A Century," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 50-67, January.
    13. Phillips, Kerk L. & Chen, Baizhu, 2011. "Regional growth in China: An empirical investigation using multiple imputation and province-level panel data," Research in Economics, Elsevier, vol. 65(3), pages 243-253, September.
    14. Waseem Khadim & Saddam Ilyas & Bilal Mehmood, 2016. "Of Inflation and Growth Nexus in BRIMC Economies," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 4(1), pages 32-45, January.
    15. Islam, Muhammed N., 2015. "Economic growth, repression, and state expenditure in non-democratic regimes," European Journal of Political Economy, Elsevier, vol. 37(C), pages 68-85.
    16. Balázs Egert & Fredj Jawadi, 2018. "The Nonlinear Relationship between Economic growth and Financial Development," EconomiX Working Papers 2018-26, University of Paris Nanterre, EconomiX.
    17. In Do Hwang, 2017. "Which Type of Trust Matters?:Interpersonal vs. Institutional vs. Political Trust," Working Papers 2017-15, Economic Research Institute, Bank of Korea.
    18. Chen, Jinzhao & Quang, Thérèse, 2014. "The impact of international financial integration on economic growth: New evidence on threshold effects," Economic Modelling, Elsevier, vol. 42(C), pages 475-489.
    19. Bart van Ark & Dirk Pilat & Klaas de Vries, 2023. "Are Pro-Productivity Policies Fit for Purpose? Productivity Drivers and Policies in G-20 Economies," Working Papers 038, The Productivity Institute.
    20. Rosa Bernardini Papalia & Silvia Bertarelli, 2010. "Evaluating Total Factor Productivity Differences by a Mapping Structure in Growth Models," International Regional Science Review, , vol. 33(1), pages 31-59, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecomi:v:13:y:2025:i:2:p:31-:d:1579695. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.