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Inflation and economic growth: A dynamic panel threshold analysis for Asian economies

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  • Vinayagathasan, Thanabalasingam

Abstract

This paper investigates the existence of a threshold level for inflation and how any such level affects the growth of Asian economies. We use a dynamic panel threshold growth regression, which allows for fixed effects and endogeneity. We observe a nonlinear relationship between inflation and economic growth for 32 Asian countries over the period 1980–2009. We detect an inflation threshold of approximately 5.43%, at a 1% level of significance. We find that inflation hurts growth when it exceeds 5.43% but has no effect below this level. Different estimation methods determine that the effect of inflation on growth is robust. Our findings may be useful to central banks as a guide for inflation targeting.

Suggested Citation

  • Vinayagathasan, Thanabalasingam, 2013. "Inflation and economic growth: A dynamic panel threshold analysis for Asian economies," Journal of Asian Economics, Elsevier, vol. 26(C), pages 31-41.
  • Handle: RePEc:eee:asieco:v:26:y:2013:i:c:p:31-41
    DOI: 10.1016/j.asieco.2013.04.001
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    More about this item

    Keywords

    Dynamic panel threshold model; Economic growth; Inflation; Inflation threshold;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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