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Threshold Relationships among Inflation, Financial Market Development and Growth

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  • Michelle L. Barnes

    (School of Economics, University of Adelaide)

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    Abstract

    This paper tests for and estimates non-dynamic panel threshold relationships among inflation, financial market development and growth, where the relationship changes once a threshold level of inflation is reached. Robust statistical support of a single threshold value of inflation (about 14%) is found for this trivariate relationship. A strong positive relationship between growth and financial market development occurs before the threshold, and a strong negative relationship between growth and inflation occurs after the threshold. When an interaction variable between inflation and financial market development is introduced, the relationship between growth and inflation is significantly negative only before the threshold.

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    File URL: http://www.economics.adelaide.edu.au/research/papers/doc/wp2000-04.pdf
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    Bibliographic Info

    Paper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2000-04.

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    Length: 32 pages
    Date of creation: 2000
    Date of revision:
    Handle: RePEc:adl:wpaper:2000-04

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    Postal: Adelaide SA 5005
    Phone: (618) 8303 5540
    Web page: http://www.economics.adelaide.edu.au/
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    Related research

    Keywords: thresholds; growth; financial markets; inflation; panel methods;

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    References

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    1. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    2. Atje, Raymond & Jovanovic, Boyan, 1993. "Stock markets and development," European Economic Review, Elsevier, vol. 37(2-3), pages 632-640, April.
    3. Bullard, James & Keating, John W., 1995. "The long-run relationship between inflation and output in postwar economies," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 477-496, December.
    4. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
    5. Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics.
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