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Reexamining the relationship between inflation and growth: Do institutions matter in developing countries?

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  • Ibarra, Raul
  • Trupkin, Danilo R.

Abstract

Using a large panel of countries during the period 1950–2009, we estimate the inflation thresholds above which its association with economic growth is expected to be negative, taking into account differences in institutions across countries. First, in line with previous literature, we find that the estimated threshold is substantially higher for developing countries compared to that of developed countries. However, we further show that the inflation threshold in developing economies falls when we consider reduced groups that exceed certain levels of institutional quality. We also find that the cost of inflation increases with the quality of institutions.

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  • Ibarra, Raul & Trupkin, Danilo R., 2016. "Reexamining the relationship between inflation and growth: Do institutions matter in developing countries?," Economic Modelling, Elsevier, vol. 52(PB), pages 332-351.
  • Handle: RePEc:eee:ecmode:v:52:y:2016:i:pb:p:332-351
    DOI: 10.1016/j.econmod.2015.09.011
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    Cited by:

    1. Seleteng, Monaheng & Bittencourt, Manoel & van Eyden, Reneé, 2013. "Non-linearities in inflation–growth nexus in the SADC region: A panel smooth transition regression approach," Economic Modelling, Elsevier, vol. 30(C), pages 149-156.
    2. Katharina Pijnenburg, 2013. "The Spatial Dimension of US House Price Developments," Discussion Papers of DIW Berlin 1270, DIW Berlin, German Institute for Economic Research.
    3. Polterovich, V. & Popov, V., 2016. "Exchange Rate, Inflation and Industrial Policy," Journal of the New Economic Association, New Economic Association, vol. 29(1), pages 192-198.
    4. Mavikela, Nomahlubi & Mhaka, Simba & Phiri, Andrew, 2018. "The inflation-growth relationship in SSA inflation targeting countries," MPRA Paper 82141, University Library of Munich, Germany.
    5. Khoza, Keorapetse & Thebe, Relebogile & Phiri, Andrew, 2016. "Nonlinear impact of inflation on economic growth in South Africa: A smooth transition regression (STR) analysis," MPRA Paper 73840, University Library of Munich, Germany.
    6. Madhu Sehrawat & A. K. Giri, 2015. "Re-examining the Threshold Effects in Inflation–Growth Nexus: Evidence from India," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 3(2), pages 57-67, Fabruary.
    7. Wu, Po-Chin & Liu, Shiao-Yen & Pan, Sheng-Chieh, 2013. "Nonlinear bilateral trade balance-fundamentals nexus: A panel smooth transition regression approach," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 318-329.
    8. repec:scn:financ:y:2018:i:1:p:50-63 is not listed on IDEAS
    9. Lena Dräger & Jan-Oliver Menz & Ulrich Fritsche, 2014. "Perceived inflation under loss aversion," Applied Economics, Taylor & Francis Journals, vol. 46(3), pages 282-293, January.
    10. Mariem Brahim & Houssem Rachdi, 2014. "Foreign Direct Investment, Institutions and Economic Growth: Evidence from the MENA Region," Journal of Reviews on Global Economics, Lifescience Global, vol. 3, pages 328-339.
    11. Po-Chin Wu & Sheng-Chieh Pan & Xue-Ling Tai, 2015. "Non-linearity, persistence and spillover effects in stock returns: the role of the volatility index," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(3), pages 597-613, August.
    12. Katharina Pijnenburg, 2014. "The Spatial Dimension of US House Price Developments," ERSA conference papers ersa14p127, European Regional Science Association.
    13. Po-Chin Wu & Shiao-Yen Liu & Kou-Bau Wang, 2017. "Does Unemployment Matter for Lottery Sales and their Persistence? A New Estimation Approach," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 130(2), pages 581-592, January.
    14. Djahini, Edém & Ayassou, Kokou, 2016. "Quel niveau de transformation économique pour réduire les inégalités de revenu en Afrique ?
      [What level of economic transformation for income inequality alleviation in Africa?]
      ," MPRA Paper 74944, University Library of Munich, Germany.
    15. Ndoricimpa, Arcade & Osoro, Nehemiah & Kidane, Asmerom, 2016. "Threshold effects of inflation on economic growth in selected African regional economic communities: Evidence from a dynamic panel threshold modeling," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 41, pages 5-23.
    16. repec:bla:afrdev:v:29:y:2017:i:3:p:471-484 is not listed on IDEAS
    17. Reneé van Eyden & Tolga Omay & Rangan Gupta, 2015. "Inflation-Growth Nexus in Africa: Evidence from a Pooled CCE Multiple Regime Panel Smooth Transition Model," Working Papers 201504, University of Pretoria, Department of Economics.
    18. Waseem Khadim & Saddam Ilyas & Bilal Mehmood, 2016. "Of Inflation and Growth Nexus in BRIMC Economies," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 4(1), pages 32-45, January.
    19. Cecilia Bermúdez & Carlos D. Dabús & Germán H. González, 2015. "Reexamining the link between instability and growth in Latin America: A dynamic panel data estimation using k-median clusters," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 52(1), pages 1-23, May.

    More about this item

    Keywords

    Inflation; Economic growth; Threshold effects; Institutions;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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