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Relationship between inflation and economic growth in Azerbaijani economy: is there any threshold effect?

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  • Hasanov, Fakhri

Abstract

The study examines possibility of threshold effect of inflation on economic growth over the period of 2000-2009. Estimated threshold model indicates that there is a non-linear relationship between economic growth and inflation in the Azerbaijani economy and threshold level of inflation for GDP growth is 13 percent. Below threshold level inflation has statistically significant positive effect on GDP growth, but this positive relationship becomes negative one when inflation exceeds 13 percent. Results of the study may be useful for monetary policymakers in terms of keeping inflation below the threshold level of 13 percent to prevent its negative effect on economic growth.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33494.

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Date of creation: Jun 2011
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Publication status: Published in Asian Journal of Business and Management Sciences No1.1(2011): pp. 1-11
Handle: RePEc:pra:mprapa:33494

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Keywords: Azerbaijani Economy; Inflation; Economic Growth; Gross Fixed Capital Formation; Threshold Level;

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  1. 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.
  2. Feldstein, Martin, 1982. "Inflation, Tax Rules and Investment: Some Econometric Evidence," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 825-62, July.
  3. FABAYO, Joseph Ademola & AJILORE, Olubanjo Taiwo, 2006. "Inflation: How Much Is Too Much For Economic Growth in Nigeria," Indian Economic Review, Department of Economics, Delhi School of Economics, Department of Economics, Delhi School of Economics, vol. 41(2), pages 129-147, December.
  4. 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.
  5. Nasir Iqbal & Saima Nawaz, 2009. "Investment, Inflation and Economic Growth Nexus," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 48(4), pages 863–874.
  6. Qaiser Munir & Kasim Mansur, 2009. "Non-Linearity between Inflation Rate and GDP Growth in Malaysia," Economics Bulletin, AccessEcon, vol. 29(3), pages 1555-1569.
  7. Raphael A. Espinoza & Ananthakrishnan Prasad & H. L. Leon, 2010. "Estimating the Inflation-Growth Nexus," IMF Working Papers 10/76, International Monetary Fund.
  8. Michael Sarel, 1996. "Nonlinear Effects of Inflation on Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 199-215, March.
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