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Nonparametric and semiparametric evidence on the long-run effects of inflation on growth

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  • Andrea Vaona
  • Stefano Schiavo

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Abstract

Two major findings of the empirical literature on the connec tion between inflation and output growth is that their relationship is non linear and that there exists a threshold inflation level be low which inflation has a positive impact on growth and above which inflation has a negative impact on growth. In this paper we adopt both a nonparametric estimator and a semiparametric IV one to show that the first finding holds true even dropping the specification assumptions typical of parametric models. We also show that a threshold level does exist and it is around 12% for developed countries. Below this level inflation does not appear to have any substantial effect on growth.

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Bibliographic Info

Paper provided by Department of Economics, University of Trento, Italia in its series Department of Economics Working Papers with number 0520.

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Date of creation: 2005
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Handle: RePEc:trn:utwpde:0520

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Keywords: Inflation; Growth;

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  1. Judson, Ruth & Orphanides, Athanasios, 1999. "Inflation, Volatility and Growth," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 2(1), pages 117-38, April.
  2. 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.
  3. Park, Sangin, 2003. "Semiparametric instrumental variables estimation," Journal of Econometrics, Elsevier, Elsevier, vol. 112(2), pages 381-399, February.
  4. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(3), pages 485-512, December.
  5. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor, 1996. "Does Inflation Matter for Growth?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1503, C.E.P.R. Discussion Papers.
  6. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank.
  7. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, Econometric Society, vol. 56(4), pages 931-54, July.
  8. Pagan,Adrian & Ullah,Aman, 1999. "Nonparametric Econometrics," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521586115.
  9. Michael Sarel, 1996. "Nonlinear Effects of Inflation on Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 199-215, March.
  10. Anthony Philip Thirlwall & A.C. Barton, 1971. "Inflation and growth: the international evidence," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 24(98), pages 263-275.
  11. Temple, Jonathan, 2000. " Inflation and Growth: Stories Short and Tall," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 14(4), pages 395-426, September.
  12. Max Gillman & Mark N. Harris & László Mátyás, 2004. "Inflation and growth: Explaining a negative effect," Empirical Economics, Springer, Springer, vol. 29(1), pages 149-167, January.
  13. Atish R. Ghosh & Steven Phillips, 1998. "Inflation, Disinflation, and Growth," IMF Working Papers 98/68, International Monetary Fund.
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Citations

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Cited by:
  1. Danilo Trupkin & Raul Ibarra, 2011. "The Relationship between Inflation and Growth:A Panel Smooth Transition Regression Approach for Developed and Developing Countries," Documentos de Trabajo/Working Papers 1107, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
  2. Henderson, Daniel J., 2008. "A Test for Multimodality of Regression Derivatives with an Application to Nonparametric Growth Regressions," MPRA Paper 8768, University Library of Munich, Germany.
  3. Andrea Vaona, 2008. "Regional evidence on financial development, finance term structure and growth," Empirical Economics, Springer, Springer, vol. 34(1), pages 185-201, February.
  4. Eloi Laurent & Jérôme Creel & Jacques Le Cacheux, 2007. "Politiques et performances macroéconomiques de la zone euro : institutions, incitations, stratégies," Sciences Po publications 2007-23, Sciences Po.
  5. Isabel Ortiz & Jingqing Chai & Matthew Cummins, 2011. "Identifying Fiscal Space:Options for Social and Economic Development for Children and Poor Households in 184 Countries," Working papers, UNICEF,Division of Policy and Strategy 1108, UNICEF,Division of Policy and Strategy.
  6. Wojciech Charemza & Svetlana Makarova & Imran Shah, 2013. "Making the most of High Inflation," Discussion Papers in Economics 13/01, Department of Economics, University of Leicester.
  7. 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.
  8. Wojciech Charemza & Svetlana Makarova & Imran Shah, 2013. "Frequent episoded of high inflation and real effects," EcoMod2013 5478, EcoMod.
  9. Andrea Vaona, 2005. "Regional Evidence on the Finance-Growth Nexus," Working Papers, University of Verona, Department of Economics 30, University of Verona, Department of Economics.
  10. repec:spo:wpecon:info:hdl:2441/2139 is not listed on IDEAS
  11. Henderson, Daniel J. & Papageorgiou, Chris & Parmeter, Christopher F., 2008. "Are any growth theories linear? Why we should care about what the evidence tells us," MPRA Paper 8767, University Library of Munich, Germany.
  12. Daniel J. Henderson, 2010. "A test for multimodality of regression derivatives with application to nonparametric growth regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 25(3), pages 458-480.

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