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When Does Inflation Hurt Economic Growth? Different Nonlinearities for Different Economies

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Author Info
Richard C.K. Burdekin (Claremont McKenna College)
Arthur T. Denzau (Claremont Graduate University)
Manfred W. Keil (Claremont McKenna College)
Thitithep Sitthiyot (Claremont Graduate University)
Thomas D. Willett (Claremont McKenna College and Claremont Graduate University.)

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Abstract

We show that the effects of inflation on growth change substantially as the inflation rate rises. Moreover the nonlinearities are quite different for industrial economies than for developing countries. We find that the threshold at which inflation first begins to seriously negatively affect growth is around 8% for industrial economies but 3% or less for developing countries. Marginal growth costs for developing countries then decline significantly above 50% inflation. Failure to account for nonlinearity biases downward the estimated effects of inflation on growth. Mixing industrial and developing economies together also produces unreliable results.

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Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 2000-22.

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Handle: RePEc:clm:clmeco:2000-22

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Related research
Keywords: inflation; growth; non-linearity;

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Find related papers by JEL classification:
O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Richard C.K. Burdekin & Arthur T. Denzau & Manfred W. Keil & Thitithep Sitthiyot & Thomas D. Willett, . "Nonlinear Effects of Inflation on Growth: Comment," Claremont Colleges Working Papers 2000-23, Claremont Colleges. [Downloadable!]
  2. Brian Motley, 1998. "Growth and inflation: a cross-country study," Economic Review, Federal Reserve Bank of San Francisco, pages 15-28. [Downloadable!]
  3. Burdekin, Richard C K, et al, 1994. "The Effects of Inflation on Economic Growth in Industrial and Developing Countries: Is There a Difference?," Applied Economics Letters, Taylor and Francis Journals, vol. 1(10), pages 175-77, October. [Downloadable!] (restricted)
  4. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Kim, Sung & Willett, Thomas D, 2000. "Is the Negative Correlation between Inflation and Growth Real? An Analysis of the Effects of the Oil Supply Shocks," Applied Economics Letters, Taylor and Francis Journals, vol. 7(3), pages 141-47, March. [Downloadable!] (restricted)
  6. Peter Christoffersen & Peter Doyle, 2000. "From Inflation to Growth," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 421-451, July. [Downloadable!] (restricted)
  7. Robert J. Barro, 1996. "Inflation and growth," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 153-169. [Downloadable!]
  8. Sanja Kalra & Torsten Sløk, 1999. "Inflation and Growth in Transition: Are the Asian Economies Different?," IMF Working Papers 99/118, International Monetary Fund.
  9. Atish R. Ghosh & Steven Phillips, 1998. "Inflation, Disinflation, and Growth," IMF Working Papers 98/68, International Monetary Fund.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andong Zhu & Robert Pollin, 2005. "Inflation and Economic Growth: A Cross-Country Non-linear Analysis," Working Papers wp109, Political Economy Research Institute, University of Massachusetts at Amherst. [Downloadable!]
  2. Alexandru Minea & Christophe Rault & Patrick Villieu, 2008. "Further theoretical and empirical evidence on money to growth relation," Economics Bulletin, Economics Bulletin, vol. 5(21), pages 1-7. [Downloadable!]
    Other versions:
  3. Nicholas Apergis & Stephen M. Miller, 2007. "Total Factor Productivity and Monetary Policy: Evidence from Conditional Volatility," Working papers 2007-06, University of Connecticut, Department of Economics. [Downloadable!]
    Other versions:
  4. Bonilla, Eugenio Diaz, 2008. "Global macroeconomic developments and poverty:," IFPRI discussion papers 766, International Food Policy Research Institute (IFPRI). [Downloadable!]
  5. Richard C.K. Burdekin & Arthur T. Denzau & Manfred W. Keil & Thitithep Sitthiyot & Thomas D. Willett, . "Nonlinear Effects of Inflation on Growth: Comment," Claremont Colleges Working Papers 2000-23, Claremont Colleges. [Downloadable!]
  6. Robert Pollin & James Heintz, 2007. "Expanding Decent Employment in Kenya: The Role of Monetary Policy, Inflation Control, and the Exchange Rate," Country Study 6, International Policy Centre for Inclusive Growth. [Downloadable!]
  7. Réka Juhász, 2008. "The optimal rate of inflation and the inflation target: international experience and the Hungarian perspective," MNB Bulletin, Magyar Nemzeti Bank (The Central Bank of Hungary), vol. 3(2), pages 30-37, September. [Downloadable!]
  8. Gerald Epstein, 2007. "Central banks, inflation targeting and employment creation," Economic and Labour Market Papers 2007/02, International Labour Office. [Downloadable!]
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