Inflation and Growth: New Evidence From a Dynamic Panel Threshold Analysis
AbstractWe introduce a dynamic panel threshold model to shed new light on the impact of inflation on long-term economic growth. The empirical analysis is based on a large panel-data set including 124 countries during the period from 1950 to 2004. For industrialized countries, our results confirm the inflation targets of about 2% set by many central banks. For non-industrialized countries, we estimate that inflation hampers growth if it exceeds 17%. Below this threshold, however, the impact of inflation on growth remains insignificant. Therefore, our results do not support growth-enhancing effects of inflation in developing countries.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2009-036.
Length: 22 pages
Date of creation: Jul 2009
Date of revision:
Inflation Thresholds; Inflation and Growth; Dynamic Panel Threshold Model;
Other versions of this item:
- Stephanie Kremer & Alexander Bick & Dieter Nautz, 2013. "Inflation and growth: new evidence from a dynamic panel threshold analysis," Empirical Economics, Springer, vol. 44(2), pages 861-878, April.
- Kremer, Stephanie & Bick, Alexander & Nautz, Dieter, 2009. "Inflation and growth: new evidence from a dynamic panel threshold analysis," Discussion Papers 2009/9, Free University Berlin, School of Business & Economics.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-17 (All new papers)
- NEP-CBA-2009-07-17 (Central Banking)
- NEP-FDG-2009-07-17 (Financial Development & Growth)
- NEP-MAC-2009-07-17 (Macroeconomics)
- NEP-MON-2009-07-17 (Monetary Economics)
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.:
- M Arellano & O Bover, 1990.
"Another Look at the Instrumental Variable Estimation of Error-Components Models,"
CEP Discussion Papers
dp0007, Centre for Economic Performance, LSE.
- Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
- Bick, Alexander, 2010. "Threshold effects of inflation on economic growth in developing countries," Economics Letters, Elsevier, vol. 108(2), pages 126-129, August.
- Bruce E. Hansen, 1996.
"Sample Splitting and Threshold Estimation,"
Boston College Working Papers in Economics
319., Boston College Department of Economics, revised 12 May 1998.
- Caner, Mehmet & Hansen, Bruce E., 2004. "Instrumental Variable Estimation Of A Threshold Model," Econometric Theory, Cambridge University Press, vol. 20(05), pages 813-843, October.
- David Roodman, 2007.
"A Note on the Theme of Too Many Instruments,"
125, Center for Global Development.
- Xavier X. Sala-i-Martin, 1997.
"I Just Ran Four Million Regressions,"
NBER Working Papers
6252, National Bureau of Economic Research, Inc.
- Atish Ghosh & Steven Phillips, 1998. "Warning: Inflation May Be Harmful to Your Growth," IMF Staff Papers, Palgrave Macmillan, vol. 45(4), pages 672-710, December.
- Mohsin S. Khan & A. Senhadji Semlali & Bruce D. Smith, 2001.
"Inflation and Financial Depth,"
IMF Working Papers
01/44, International Monetary Fund.
- Burdekin, Richard C.K. & Denzau, Arthur T. & Keil, Manfred W. & Sitthiyot, Thitithep & Willett, Thomas D., 2004.
"When does inflation hurt economic growth? Different nonlinearities for different economies,"
Journal of Macroeconomics,
Elsevier, vol. 26(3), pages 519-532, September.
- Richard C.K. Burdekin & Arthur T. Denzau & Manfred W. Keil & Thitithep Sitthiyot & Thomas D. Willett, . "When Does Inflation Hurt Economic Growth? Different Nonlinearities for Different Economies," Claremont Colleges Working Papers 2000-22, Claremont Colleges.
- David R. Hineline, 2007. "Examining the Robustness of the Inflation and Growth Relationship," Southern Economic Journal, Southern Economic Association, vol. 73(4), pages 1020â1037, April.
- Andrea Vaona & Stefano Schiavo, 2006.
"Nonparametric and semiparametric evidence on the long-run effects of inflation on growth,"
Sciences Po publications
No. 1286, Sciences Po.
- Vaona, A. & Schiavo, S., 2007. "Nonparametric and semiparametric evidence on the long-run effects of inflation on growth," Economics Letters, Elsevier, vol. 94(3), pages 452-458, March.
- Andrea Vaona & Stefano Schiavo, 2005. "Nonparametric and semiparametric evidence on the long-run effects of inflation on growth," Department of Economics Working Papers 0520, Department of Economics, University of Trento, Italia.
- Andrea Vaona & Stefano Schiavo, 2006. "Nonparametric and Semiparametric Evidence on the Long-Run Effects of Inflation on Growth," Kiel Working Papers 1286, Kiel Institute for the World Economy.
- Omay, Tolga & Öznur Kan, Elif, 2010. "Re-examining the threshold effects in the inflation-growth nexus with cross-sectionally dependent non-linear panel: Evidence from six industrialized economies," Economic Modelling, Elsevier, vol. 27(5), pages 996-1005, September.
- David, Drukker & Pedro, Gomis-Porqueras & Paula, Hernandez -erme, 2005. "Threshold effects in the relationship between inflation and growth: a new panel-data approach," MPRA Paper 38225, University Library of Munich, Germany.
- Goncalves, Carlos Eduardo S. & Salles, Joao M., 2008. "Inflation targeting in emerging economies: What do the data say?," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 312-318, February.
- A. Senhadji Semlali & Mohsin S. Khan, 2000.
"Threshold Effects in the Relationship Between Inflation and Growth,"
IMF Working Papers
00/110, International Monetary Fund.
- By Mohsin S. Khan & Abdelhak S. Senhadji, 2001. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1.
- Vaona, Andrea, 2012.
"Inflation And Growth In The Long Run: A New Keynesian Theory And Further Semiparametric Evidence,"
Cambridge University Press, vol. 16(01), pages 94-132, February.
- Andrea Vaona, 2010. "Inflation and Growth in the Long Run: A New Keynesian Theory and Further Semiparametric Evidence," Working Papers 09/2010, University of Verona, Department of Economics.
- Bruno, Michael & Easterly, William, 1995.
"Inflation crises and long-run growth,"
Policy Research Working Paper Series
1517, The World Bank.
- Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996.
" Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics,"
Journal of Economic Growth,
Springer, vol. 1(3), pages 363-89, September.
- Levine, Ross & Renelt, David, 1991.
"A sensitivity analysis of cross-country growth regressions,"
Policy Research Working Paper Series
609, The World Bank.
- Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
- Lin, Shu & Ye, Haichun, 2009. "Does inflation targeting make a difference in developing countries?," Journal of Development Economics, Elsevier, vol. 89(1), pages 118-123, May.
- Temple, Jonathan, 2000. " Inflation and Growth: Stories Short and Tall," Journal of Economic Surveys, Wiley Blackwell, vol. 14(4), pages 395-426, September.
- Alexander Bick & Dieter Nautz, 2008. "Inflation Thresholds and Relative Price Variability: Evidence from U.S. Cities," International Journal of Central Banking, International Journal of Central Banking, vol. 4(3), pages 61-76, September.
- Neil Foster, 2006. "Exports, growth and threshold effects in Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 42(6), pages 1056-1074.
- Hansen, Bruce E., 1999.
"Threshold effects in non-dynamic panels: Estimation, testing, and inference,"
Journal of Econometrics,
Elsevier, vol. 93(2), pages 345-368, December.
- Tom Doan, . "PANELTHRESH: RATS procedure to analyze up to two threshold breaks in a fixed effects panel model," Statistical Software Components RTS00152, Boston College Department of Economics.
- Tom Doan, . "RATS programs to replicate Hansen's example of threshold break in panel data," Statistical Software Components RTZ00088, Boston College Department of Economics.
- 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.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RDC-Team).
If references are entirely missing, you can add them using this form.