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When Should We Worry about Inflation?

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Author Info

  • Raphael Espinoza
  • Hyginus Leon
  • Ananthakrishnan Prasad

Abstract

At what level should inflation be a concern? From a growth perspective, high and rising levels of inflation as in 2006–2008 raise concerns that inflation, if uncontained, could undermine growth. On the other hand, higher levels of inflation could create more space for using monetary policy to reduce nominal and real interest rates during financial crises. A nonlinear growth regression for 165 countries over 1960–2007 shows that for developing countries, inflation above 10 percent quickly hurts growth. For advanced economies, there is no specific threshold: in the medium term, higher inflation hurts growth for any initial level of inflation, suggesting that there is a real cost to maintaining higher inflation as a buffer. Copyright 2012, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/wber/lhr043
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Bibliographic Info

Article provided by World Bank Group in its journal The World Bank Economic Review.

Volume (Year): 26 (2012)
Issue (Month): 1 ()
Pages: 100-127

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Handle: RePEc:oup:wbecrv:v:26:y:2012:i:1:p:100-127

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Cited by:
  1. Raphael Espinoza, 2012. "Factor Accumulation and the Determinants of TFP in the GCC," OxCarre Working Papers 094, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.

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