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Does High Inflation Affect Growth in the Long and Short Run?

  • João R. Faria


    (University of Technology - Sydney - Australia)

  • Francisco Galrão Carneiro


    (Catholic University of Brasilia - Brazil)

This paper investigates the relationship between inflation and output in the context of an economy facing persistent high inflation. By analyzing the case of Brazil, we find that inflation does not impact real output in the long run, but that in the short run there exists a negative effect from inflation on output. These results support Sidrauski’s (1967) superneutrality of money in the long run, but cast doubt on the short run implications of the model for separable utility functions in consumption and real money balances, as exposed by Fischer (1979). The results are more likely to support a class of utility functions in which real money balances and consumption are perfect complements.

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Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): IV (2001)
Issue (Month): (May)
Pages: 89-105

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Handle: RePEc:cem:jaecon:v:4:y:2001:n:1:p:89-105
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  9. Fischer, Stanley, 1981. "Towards an understanding of the costs of inflation: II," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 5-41, January.
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  16. Simonsen, Mario Henrique & Cysne, Rubens Penha, 1994. "Welfare costs of inflation: the case for interest-bearing money and empirical estimates for Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 245, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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