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Growth and inflation: a cross-country study

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  • Brian Motley
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    Abstract

    This paper examines the effect of inflation on real growth in a Solow growth model using data from a cross section of countries over a 30-year period. The advantage of using a theoretical model is that it reduces the risk that the results will reflect data-mining. The results suggest that the 5 percentage point reduction in inflation from the 1970s to the 1980s would increase the growth rate of real GDP per head by between 0.1 and 0.5 percentage point. This effect would be worth between 15 percent and 140 percent of one year's income. Even the lower of these projections would be larger than most estimates of the costs of bringing inflation down.

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    Bibliographic Info

    Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

    Volume (Year): (1998)
    Issue (Month): ()
    Pages: 15-28

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    Handle: RePEc:fip:fedfer:y:1998:p:15-28:n:1

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    Related research

    Keywords: Economic development ; Inflation (Finance) ; Gross domestic product;

    References

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    1. John P. Judd & Bharat Trehan, 1993. "The cyclical behavior of prices: interpreting the evidence," Working Papers in Applied Economic Theory 93-14, Federal Reserve Bank of San Francisco.
    2. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
    3. Martin S. Feldstein, 1997. "The Costs and Benefits of Going from Low Inflation to Price Stability," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 123-166 National Bureau of Economic Research, Inc.
    4. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(3), pages 485-512, December.
    5. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
    6. Nehru, Vikram & Swanson, Eric & Dubey, Ashutosh, 1995. "A new database on human capital stock in developing and industrial countries: Sources, methodology, and results," Journal of Development Economics, Elsevier, Elsevier, vol. 46(2), pages 379-401, April.
    7. Robert Mundell, 1963. "Inflation and Real Interest," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 71, pages 280.
    8. Brian Motley, 1994. "Growth and inflation: a cross-country study," Working Papers in Applied Economic Theory 94-08, Federal Reserve Bank of San Francisco.
    9. Laurence Ball, 1993. "How costly is disinflation? The historical evidence," Business Review, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of Philadelphia, issue Nov, pages 17-28.
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    Cited by:
    1. Richard C.K. Burdekin & Arthur T. Denzau & Manfred W. Keil & Thitithep Sitthiyot & Thomas D. Willett, . "When Does Inflation Hurt Economic Growth? Different Nonlinearities for Different Economies," Claremont Colleges Working Papers, Claremont Colleges 2000-22, Claremont Colleges.
    2. Jesús Crespo Cuaresma & Maria Antoinette Silgoner, 2004. "Groth effects of inflation in Europe: How low is too low, how high is too high?," Vienna Economics Papers, University of Vienna, Department of Economics 0411, University of Vienna, Department of Economics.
    3. Georgios Bitros & Epaminondas Panas, 2005. "Another look at the inflation-productivity trade-off," Macroeconomics, EconWPA 0506001, EconWPA.
    4. George Bitros & Epaminondas Panas, 2006. "The inflation-productivity trade-off revisited," Journal of Productivity Analysis, Springer, Springer, vol. 26(1), pages 51-65, August.

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