The Relationship between Inflation and Growth:A Panel Smooth Transition Regression Approach for Developed and Developing Countries
AbstractThis paper studies the existence for a set of countries of an inflation threshold above which its effect on economic growth is negative, considering the speed of transition from one inflation regime to the other. Using a panel data set of above 120 countries for the period after the Second World War, we apply a panel smooth transition regression (PSTR) model with xed effects. The estimated threshold of the inflation rate for industrialized countries is 4.1%, while for non-industrialized countries the threshold is 19.1%. The speed of transition is relatively smooth in the first group, but for developing economies inflation rapidly has negative effects on growth when it is near the threshold. In addition, we find that the in ation threshold falls to 7.9% by selecting a reduced group of developing countries, according to a measure associated with institutional quality.
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Bibliographic InfoPaper provided by Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo. in its series Documentos de Trabajo/Working Papers with number 1107.
Date of creation: 2011
Date of revision:
Inflation; economic growth; treshold effects; smooth transition.;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
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