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The growth-inflation nexus for the U.S. from 1801 to 2013: A semiparametric approach

Author

Listed:
  • Mehmet Balcilar

    (Eastern Mediterranean University, University of Pretoria and Montpellier Business School)

  • Rangan Gupta

    (University of Pretoria and IPAG Business School)

  • Charl Jooste

    (University of Pretoria)

Abstract

We study the existence of a threshold level of inflation for the U.S. economy over 1801- 2013, beyond which it has a negative effect on economic growth. A combination of nonparametric (NP) and instrumental variable semiparametric (SNP-IV) methods obtain inflation thresholds for the United States. The results suggest that the relationship between growth and inflation is hump shaped –that higher levels of inflation reduce growth more compared to low inflation or deflation. The strongest result to emerge from the study consistently shows that inflation above two per cent negatively affects growth. Two additional parametric methods confirm this finding. Another important result is that high or very low levels of inflation are undesirable and are associated with lower growth - hinting that a growth maximizing value of inflation exists.

Suggested Citation

  • Mehmet Balcilar & Rangan Gupta & Charl Jooste, 2017. "The growth-inflation nexus for the U.S. from 1801 to 2013: A semiparametric approach," Journal of Applied Economics, Universidad del CEMA, vol. 20, pages 105-120, May.
    • Handle: RePEc:cem:jaecon:v:20:y:2017:n:1:p:105-120
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    Keywords

    inflation; growth; nonparametric; semiparametric;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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