Inflation crises, deflation, and growth: further evidence

Bruno and Easterly (1998) provide a simple historical description of per capita GDP growth rates before, during and after periods of high inflation crises. The pattern of growth shows resurgence in after-crisis growth to above the before-crisis level. The robustness of this finding is tested against justifiable changes in the data sample used and against different crisis definitions. The results show that after-crisis growth rates do not recover to a level above those experienced before-crisis. In contrast to Bruno and Easterly, the important distinction between open and closed economies is emphasized. Only in the former case are their results that growth deviations from the world average after-crisis improve relative to the before-crisis periods confirmed. Finally, the pattern of growth before, during and after deflationary periods is analysed. The data reveal a potentially important asymmetry in the correlation between deflation and growth, and inflation and growth. Low rates of deflation are associated with a similarly negative per capita GDP growth rate as are very high rates of inflation.