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Threshold relationships among inflation, financial development, and growth


Author Info

  • Barnes, Michelle L

    (Federal Reserve Bank of Boston)

  • Duquette, Nicolas

    (University Of Michigan)


This paper tests for and estimates relationships among inflation, financial market development (FMD), and growth. This trivariate relationship changes across a statistically robust inflation threshold of about 14%. Below 14%, the relationship between growth and FMD is positive; above 14%, the relationship between growth and inflation is negative. The interaction between FMD and inflation has a significant impact, however: below 14% there is a positive correlation between growth and inflation, but marginal increases in inflation impair the relationship between growth and FMD; above 14% marginal increases in inflation have little or no impact on this relationship. This suggests that the role of financial markets as a channel of economic growth is important and changes with the level of inflation.

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Bibliographic Info

Article provided by Capco Institute in its journal Journal of Financial Transformation.

Volume (Year): 17 (2006)
Issue (Month): ()
Pages: 141-149

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Handle: RePEc:ris:jofitr:1406

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Related research

Keywords: inflation; financial development; growth; threshold effects;

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Cited by:
  1. Eggoh, Jude C. & Khan, Muhammad, 2014. "On the nonlinear relationship between inflation and economic growth," Research in Economics, Elsevier, vol. 68(2), pages 133-143.
  2. William Miles & Samuel Schreyer, 2009. "Inflation Costs, Uncertainty Costs And Emerging Markets," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 34(2), pages 169-183, December.
  3. Phiri, Andrew, 2013. "Inflation and Economic Growth in Zambia: A Threshold Autoregressive (TAR) Econometric Approach," MPRA Paper 52093, University Library of Munich, Germany.


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