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Inflation and Growth: New Evidence From a Dynamic Panel Threshold Analysis

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  • Stephanie Kremer
  • Alexander Bick
  • Dieter Nautz

Abstract

We 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.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2009-036.

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Length: 22 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2009-036

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Keywords: Inflation Thresholds; Inflation and Growth; Dynamic Panel Threshold Model;

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