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Non-linearity in the inflation–growth relationship in developing economies: Evidence from a semiparametric panel model

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  • Baglan, Deniz
  • Yoldas, Emre

Abstract

Using data on developing economies, we estimate a flexible semiparametric panel data model that incorporates potentially nonlinear effects of inflation on economic growth. We find that inflation is associated with significantly lower growth only after it reaches about 12 percent, which is notably lower than the comparable estimate obtained from a threshold model. Our results also suggest that models with restrictive functional form assumptions tend to underestimate marginal effects of inflation on economic growth. We also document significant variation in the effect of inflation on growth across countries and over time.

Suggested Citation

  • Baglan, Deniz & Yoldas, Emre, 2014. "Non-linearity in the inflation–growth relationship in developing economies: Evidence from a semiparametric panel model," Economics Letters, Elsevier, vol. 125(1), pages 93-96.
    • Handle: RePEc:eee:ecolet:v:125:y:2014:i:1:p:93-96
    DOI: 10.1016/j.econlet.2014.08.015
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    Keywords

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    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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