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Inflation, Volatility and Growth

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  • Judson, Ruth
  • Orphanides, Athanasios

Abstract

This paper re-examines the relationship between inflation, inflation volatility and growth, using cross-country panel data for the past 30 years. With regard to the level of inflation, we find that exploiting the time dimension of the data reveals a strong negative correlation between inflation and income growth for all but low inflation countries. To examine the role of inflation uncertainty on growth, we use intra-year inflation data to construct an annual measure of inflation volatility. Using this measure, we find that inflation volatility is also robustly negatively correlated with growth, even after the effect of the level of inflation is controlled for. Copyright 1999 by Blackwell Publishers Ltd.

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  • Judson, Ruth & Orphanides, Athanasios, 1999. "Inflation, Volatility and Growth," International Finance, Wiley Blackwell, vol. 2(1), pages 117-138, April.
  • Handle: RePEc:bla:intfin:v:2:y:1999:i:1:p:117-38
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    References listed on IDEAS

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    1. Clark, Todd E, 1997. "Cross-country Evidence on Long-Run Growth and Inflation," Economic Inquiry, Western Economic Association International, vol. 35(1), pages 70-81, January.
    2. Stanley Fischer & Franco Modigliani, 1978. "Towards an understanding of the real effects and costs of inflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 114(4), pages 810-833, December.
    3. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    4. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    5. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    6. Davis George & Kanago Bryce, 1992. "Misspecification bias in models of the effect of inflation uncertainty," Economics Letters, Elsevier, vol. 38(3), pages 325-329, March.
    7. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-963, September.
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