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Inflation, volatility and growth

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  • Ruth Judson
  • Athanasios Orphanides

Abstract

This paper re-examines the relationship between inflation, inflation volatility and growth using cross-country panel data for the past 30 years. With regard to the level of inflation, we find that in contrast to current findings which are based on cross-sectional time-average regression comparisons, exploiting the time dimension of the data reveals a strong negative correlation between inflation and income growth for all but very low inflation countries. To examine the role of inflation uncertainty on growth, we use intra-year inflation data to construct an annual measure of inflation volatility. Using this measure, we find that inflation volatility is also robustly negatively correlated with growth even after the effect of the level of inflation is controlled for.

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File URL: http://www.federalreserve.gov/pubs/feds/1996/199619/199619abs.html
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File URL: http://www.federalreserve.gov/pubs/feds/1996/199619/199619pap.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 96-19.

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Date of creation: 1996
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Handle: RePEc:fip:fedgfe:96-19

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Related research

Keywords: Inflation (Finance);

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References

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  1. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  2. Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc.
  3. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
  4. Stanley Fischer & Franco Modigliani, 1978. "Towards An Understanding of the Real Effects and Costs of Inflation," NBER Working Papers 0303, National Bureau of Economic Research, Inc.
  5. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  6. Todd E. Clark, 1993. "Cross-country evidence on long run growth and inflation," Research Working Paper 93-05, Federal Reserve Bank of Kansas City.
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