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Inflation and Growth: Some Theory and Evidence

Author

Listed:
  • Max Gillman

    (Central European University, Department of Economics)

  • Mark Harris

    (Melbourne Institute of Applied Economic and Social Research, the University of Melbourne)

  • László Mátyás

    (Central European University, Department of Economics)

Abstract

The paper presents a monetary model of endogenous growth and specifies an econometric model consistent with it. The economic model suggests a negative inflation-growth effect, and one that is stronger at lower levels of inflation. Empirical evaluation of the model is based on a large panel of OECD and APEC member countries over the years 1961-1997. The hypothesized negative inflation effect is found comprehensively for the OECD countries to be significant and, as in the theory, to increase marginally as the inflation rate falls. For APEC countries, the results from using instrumental variables also show significant evidence of a similar behavior.

Suggested Citation

  • Max Gillman & Mark Harris & László Mátyás, 2002. "Inflation and Growth: Some Theory and Evidence," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 D5-1, International Conferences on Panel Data.
    • Handle: RePEc:cpd:pd2002:d5-1
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    References listed on IDEAS

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    Cited by:

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    2. Patchnart Rouangsang & Chaiwat Nimanussornkul, 2012. "Relationship between inflation rate and economic growth rate of Southeast Asian countries," The Empirical Econometrics and Quantitative Economics Letters, Faculty of Economics, Chiang Mai University, vol. 1(3), pages 65-76, September.
    3. Goodness C. Aye & Nicholas M. Odhiambo, 2021. "Threshold Effect of Inflation on Agricultural Growth: Evidence from Developing Countries," Advances in Decision Sciences, Asia University, Taiwan, vol. 25(2), pages 28-50, June.
    4. Nicas Yabu & Nicholaus J. Kessy, 2015. "Appropriate Threshold Level of Inflation for Economic Growth: Evidence from the Three Founding EAC Countries," Applied Economics and Finance, Redfame publishing, vol. 2(3), pages 127-144, August.
    5. Yasir Ali Mubarik, 2005. "Inflation and Growth: An Estimate of the Threshold Level of Inflation in Pakistan," SBP Working Paper Series 08, State Bank of Pakistan, Research Department.
    6. Nepal Rastra Bank Research Department NRB, 2017. "Optimal Inflation Rate for Nepal," Working Papers id:12120, eSocialSciences.
    7. Jaganath Behera & Alok Kumar Mishra, 2017. "The Recent Inflation Crisis and Long-run Economic Growth in India: An Empirical Survey of Threshold Level of Inflation," South Asian Journal of Macroeconomics and Public Finance, , vol. 6(1), pages 105-132, June.
    8. Phiri, Andrew, 2013. "Inflation and Economic Growth in Zambia: A Threshold Autoregressive (TAR) Econometric Approach," MPRA Paper 52093, University Library of Munich, Germany.
    9. Yasir Ali Mubarik, 2005. "Inflation and Growth: An Estimate of the Threshold Level of Inflation in Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 1, pages 35-44.
    10. Kiliç, Cuneyt & Arica, Feyza, 2014. "Economic Freedom, Inflation Rate and their Impact on Economic Growth: A Panel Data Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 160-176, March.
    11. Arif Khan & Gul Zeb Chaudhary, 2020. "Determinants Of Inflation In Case Of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 9(4), pages 151-161, December.
    12. Lumengo Bonga-Bonga & Beatrice Desiree Simo-Kengne, 2018. "Inflation and Output Growth Dynamics in South Africa: Evidence from the Markov Switching Vector Autoregressive Model," Journal of African Business, Taylor & Francis Journals, vol. 19(1), pages 143-154, January.
    13. Charemza, Wojciech & Makarova, Svetlana, 2009. "Nonlinear Inflationary Persistence and Growth: Theory and Empirical Comparative Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 6(2), pages 5-22, June.
    14. Richard Ayisi, 2013. "Single-Digit Inflation Targeting and Economic Growth," American Journal of Economics and Business Administration, Science Publications, vol. 5(1), pages 22-28, September.
    15. Athanasios Koulakiotis & Katerina Lyroudi & Nicholas Papasyriopoulos, 2012. "Inflation, GDP and Causality for European Countries," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(1), pages 53-62, February.
    16. Svetlana Makarova & Wojciech Charemza, 2007. "Nonlinear Inflationary Persistence and Growth: Theory and Comparative Empirical Analysis," EcoMod2007 23900056, EcoMod.
    17. Bibi Rouksar-Dussoyea & Ho Ming-Kang & Raja Rajeswari & Benjamin Chan Yin-Fah, 2017. "Economic Crisis in Europe: Panel Analysis of Inflation, Unemployment and Gross Domestic Product Growth Rates," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(10), pages 145-154, October.
    18. Darko Lazarov & Kiril Simeonovski, 2023. "Macroeconomic Stability and Economic Growth: An Empirical Estimation for North Macedonia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 8, pages 78-94.
    19. Polterovich, Victor, 2006. "Снижение Инфляции Не Должно Быть Главной Целью Экономической Политики Правительства России [Decreasing Inflation Should not Be the Main Task of the Russian Government Economic Policy]," MPRA Paper 22064, University Library of Munich, Germany.
    20. Anneli Kaasa, 2005. "Factors Of Income Inequality And Their Influence Mechanisms: A Theoretical Overview," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 40, Faculty of Economics and Business Administration, University of Tartu (Estonia).

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    More about this item

    Keywords

    Endogenous Growth; Panel Data; Inflation; Non-linearity;
    All these keywords.

    JEL classification:

    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

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