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Is Low Inflation a Precondition for Faster Growth? The Case of South Africa

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  • Kevin S. Nell

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Abstract

In a recent article, Weeks (1999) identifies excessively high real interest rates as one of the reasons why the South African government's GEAR (Growth, Employment and Redistribution) programme has thus far been unsuccessful. This paper examines a related issue, namely whether inflation, at any given level, is always harmful to growth. The methodology employed presents a departure from standard time series case studies. In an attempt to study the costs and benefits of inflation, South Africa's inflationary experience over the last four decades is divided into four inflationary episodes. The empirical results suggest that inflation within the single-digit zone may beneficial to growth, while inflation in the double-digit zone appears to impose costs in terms of slower growth. However, further results indicate that even during periods when deflationary policy yielded growth benefits as a result of a more stable economic environment, the costs of deflation outweighed the benefits.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/0011.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 0011.

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Date of creation: Oct 2000
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Handle: RePEc:ukc:ukcedp:0011

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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
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Fax: +44 (0)1227 827850
Web page: http://www.ukc.ac.uk/economics/

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Keywords: costs of inflation; benefits of inflation; Phillips curve; growth; disinflation;

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Cited by:
  1. Phiri, Andrew, 2013. "An Inquisition into Bivariate Threshold Effects in The Inflation-Growth Correlation: Evaluating South Africa’s Macroeconomic Objectives," MPRA Paper 52094, University Library of Munich, Germany.
  2. Arne Heise, 2007. "Institutions, market constellations and growth: The case of South Africa," Annals of Economics and Finance, Society for AEF, vol. 8(2), pages 313-340, November.
  3. Athanasios Koulakiotis & Katerina Lyroudi & Nicholas Papasyriopoulos, 2012. "Inflation, GDP and Causality for European Countries," International Advances in Economic Research, Springer, vol. 18(1), pages 53-62, February.
  4. repec:asi:ajoerj:2013:p:363-380 is not listed on IDEAS

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