We introduce a dynamic panel threshold model to shed new light on the impact of inflation on long-term economic growth. The empirical analysis is based on a large panel-data set including 124 countries during the period from 1950 to 2004. For industrialized countries, our results confirm the inflation targets of about 2% set by many central banks. For non-industrialized countries, we estimate that inflation hampers growth if it exceeds 17%. Below this threshold, however, the impact of inflation on growth remains insignificant. Therefore, our results do not support growth-enhancing effects of inflation in developing countries. --
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Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number
2009/9.
Find related papers by JEL classification: E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
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