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The Negative Inflation-Growth Effect: Theory and Evidence

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Author Info

  • Mark N. Harris

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne and Economics Department, Central European University, Hungary)

  • Max Gillman

    (Economics Department, Central European University, Hungary)

  • László Mátyás

    (Economics Department, Central European University, Hungary)

Abstract

The paper presents a monetary model of endogenous growth and specifies an econometric model consistent with it. The economic model suggests a negative inflation-growth effect, and one that is stronger at lower levels of inflation. Empirical evaluation of the model is based on a large panel of OECD and APEC member countries over the years 1961-1997. The hypothesized negative inflation effect is found comprehensively for the OECD countries to be significant and, as in the theory, to increase marginally as the inflation rate falls. For APEC countries, the results from using instrumental variables also show significant evidence of a similar behavior.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2001n12.

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Length: 40 pages
Date of creation: Nov 2001
Date of revision:
Handle: RePEc:iae:iaewps:wp2001n12

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References

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  1. Paul Gomme, 1991. "Money and growth revisited," Discussion Paper / Institute for Empirical Macroeconomics 55, Federal Reserve Bank of Minneapolis.
  2. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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  16. Shaghil Ahmed & John H. Rogers, 1998. "Inflation and the great ratios: long-term evidence from the U.S," International Finance Discussion Papers 628, Board of Governors of the Federal Reserve System (U.S.).
  17. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  18. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
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  20. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
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