On the nonlinear relationship between inflation and economic growth
Using a large panel data set from both developed and developing economies and employing the PSTR and dynamic GMM techniques, this study highlights two aspects of the inflation–growth relationship. First, it analyzes the nonlinearity of the relationship and identifies several thresholds for the global sample and for various income-specific sub-samples. Second, it identifies some country-based macroeconomic features that influence this nonlinearity. Our empirical results substantiate both views and validate the fact that inflation–growth nonlinearity is sensitive to a country׳s level of financial development, capital accumulation, trade openness and government expenditures. Moreover, these country-specific characteristics result in some marked differences in this nonlinear relationship.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dick van Dijk & Dennis Fok & Philip Hans Franses, 2005. "A multi-level panel STAR model for US manufacturing sectors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(6), pages 811-827.
- Jude Eggoh, 2012. "Inflation Effects on Finance-Growth Link: A Panel Smooth Threshold Approach," International Economic Journal, Taylor & Francis Journals, vol. 26(4), pages 711-725, June.
- Omay, Tolga & Öznur Kan, Elif, 2010. "Re-examining the threshold effects in the inflation-growth nexus with cross-sectionally dependent non-linear panel: Evidence from six industrialized economies," Economic Modelling, Elsevier, vol. 27(5), pages 996-1005, September.
- Michael Bruno & William Easterly, 1995.
"Inflation Crises and Long-Run Growth,"
NBER Working Papers
5209, National Bureau of Economic Research, Inc.
- Barro, Robert J, 1990.
"Government Spending in a Simple Model of Endogenous Growth,"
Journal of Political Economy,
University of Chicago Press, vol. 98(5), pages S103-26, October.
- Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
- Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
- Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
- Richard Blundell & Steve Bond, 1995.
"Initial conditions and moment restrictions in dynamic panel data models,"
IFS Working Papers
W95/17, Institute for Fiscal Studies.
- Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
- Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
- R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
- Sachsida, Adolfo & Carneiro, Francisco Galrao & Loureiro, Paulo R. A., 2003. "Does greater trade openness reduce inflation? Further evidence using panel data techniques," Economics Letters, Elsevier, vol. 81(3), pages 315-319, December.
- Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999.
"Finance and the sources of growth,"
Policy Research Working Paper Series
2057, The World Bank.
- Hansen, Bruce E., 1999.
"Threshold effects in non-dynamic panels: Estimation, testing, and inference,"
Journal of Econometrics,
Elsevier, vol. 93(2), pages 345-368, December.
- Tom Doan, . "RATS programs to replicate Hansen's example of threshold break in panel data," Statistical Software Components RTZ00088, Boston College Department of Economics.
- Tom Doan, . "PANELTHRESH: RATS procedure to analyze up to two threshold breaks in a fixed effects panel model," Statistical Software Components RTS00152, Boston College Department of Economics.
- Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics.
- Max Gillman & Michal Kejak, 2009.
"Inflation, Investment and Growth: a Money and Banking Approach,"
IEHAS Discussion Papers
0911, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
- Max Gillman & Michal Kejak, 2011. "Inflation, Investment and Growth: a Money and Banking Approach," Economica, London School of Economics and Political Science, vol. 78(310), pages 260-282, 04.
- Albert S. Dexter & Maurice D. Levi & Barrie R. Nault, 2005. "International Trade and the Connection between Excess Demand and Inflation," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 699-708, 09.
- World Bank, 2011. "World Development Indicators 2011," World Bank Publications, The World Bank, number 2315, June.
- Levine, Ross & Renelt, David, 1992.
"A Sensitivity Analysis of Cross-Country Growth Regressions,"
American Economic Review,
American Economic Association, vol. 82(4), pages 942-63, September.
- Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
- Arellano, Manuel & Bover, Olympia, 1995.
"Another look at the instrumental variable estimation of error-components models,"
Journal of Econometrics,
Elsevier, vol. 68(1), pages 29-51, July.
- M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
- Mohsin S. Khan & Abdelhak S Senhadji & Bruce D. Smith, 2001.
"Inflation and Financial Depth,"
IMF Working Papers
01/44, International Monetary Fund.
- Mankiw, N. Gregory, 1987.
"The optimal collection of seigniorage : Theory and evidence,"
Journal of Monetary Economics,
Elsevier, vol. 20(2), pages 327-341, September.
- N. Gregory Mankiw, 1987. "The Optimal Collection of Seigniorage: Theory and Evidence," NBER Working Papers 2270, National Bureau of Economic Research, Inc.
- Max Gillman & Mark N. Harris & László Mátyás, 2004. "Inflation and growth: Explaining a negative effect," Empirical Economics, Springer, vol. 29(1), pages 149-167, January.
- Javier Andrés & Ignacio Hernando & J. David López-Salido, 1999.
"The Role of the Financial System in the Growth-Inflation Link: the OECD Experience,"
9920, Banco de España;Working Papers Homepage.
- Andres, Javier & Hernando, Ignacio & Lopez-Salido, J. David, 2004. "The role of the financial system in the growth-inflation link: the OECD experience," European Journal of Political Economy, Elsevier, vol. 20(4), pages 941-961, November.
- Stanley Fischer, 1993.
"The Role of Macroeconomic Factors in Growth,"
NBER Working Papers
4565, National Bureau of Economic Research, Inc.
- Song Han & Casey B. Mulligan, 2002.
"Inflation and the size of government,"
Finance and Economics Discussion Series
2002-1, Board of Governors of the Federal Reserve System (U.S.).
- Michael Sarel, 1996. "Nonlinear Effects of Inflation on Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 199-215, March.
- Rousseau, Peter L. & Wachtel, Paul, 2002. "Inflation thresholds and the finance-growth nexus," Journal of International Money and Finance, Elsevier, vol. 21(6), pages 777-793, November.
- Robert J. Barro, 1995.
"Inflation and Economic Growth,"
NBER Working Papers
5326, National Bureau of Economic Research, Inc.
- David R. Hineline, 2007. "Examining the Robustness of the Inflation and Growth Relationship," Southern Economic Journal, Southern Economic Association, vol. 73(4), pages 1020–1037, April.
- Rousseau, Peter L. & Yilmazkuday, Hakan, 2009. "Inflation, financial development, and growth: A trilateral analysis," Economic Systems, Elsevier, vol. 33(4), pages 310-324, December.
- Cristina T. Terra, 1998.
"Openness and Inflation: A New Assessment,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 113(2), pages 641-648.
- Lioui, Abraham & Poncet, Patrice, 2008. "Monetary non-neutrality in the Sidrauski model under uncertainty," Economics Letters, Elsevier, vol. 100(1), pages 22-26, July.
- Richard C.K. Burdekin & Arthur T. Denzau & Manfred W. Keil & Thitithep Sitthiyot & Thomas D. Willett, .
"When Does Inflation Hurt Economic Growth? Different Nonlinearities for Different Economies,"
Claremont Colleges Working Papers
2000-22, Claremont Colleges.
- Burdekin, Richard C.K. & Denzau, Arthur T. & Keil, Manfred W. & Sitthiyot, Thitithep & Willett, Thomas D., 2004. "When does inflation hurt economic growth? Different nonlinearities for different economies," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 519-532, September.
- González, Andrés & Teräsvirta, Timo & van Dijk, Dick, 2005.
"Panel Smooth Transition Regression Models,"
SSE/EFI Working Paper Series in Economics and Finance
604, Stockholm School of Economics.
- López-Villavicencio, Antonia & Mignon, Valérie, 2011. "On the impact of inflation on output growth: Does the level of inflation matter?," Journal of Macroeconomics, Elsevier, vol. 33(3), pages 455-464, September.
- Freddy Heylen & Lorenzo Pozzi, 2007. "Crises and human capital accumulation," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1261-1285, November.
- Brada, Josef C. & Ktan, Ali M., 2001.
"The convergence of monetary policy between candidate countries and the European Union,"
ZEI Working Papers
B 07-2001, University of Bonn, ZEI - Center for European Integration Studies.
- Brada, Josef C. & Kutan, Ali M., 2001. "The convergence of monetary policy between candidate countries and the European Union," Economic Systems, Elsevier, vol. 25(3), pages 215-231, September.
- Barnes, Michelle L & Duquette, Nicolas, 2006. "Threshold relationships among inflation, financial development, and growth," Journal of Financial Transformation, Capco Institute, vol. 17, pages 141-149.
- Hakan Yilmazkuday, 2013. "Inflation Thresholds and Growth," International Economic Journal, Taylor & Francis Journals, vol. 27(1), pages 1-10, March.
- Rapach, David E, 2003. " International Evidence on the Long-Run Impact of Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 23-48, February.
- Nigel Pain & Isabell Koske & Marte Sollie, 2006. "Globalisation and Inflation in the OECD Economies," OECD Economics Department Working Papers 524, OECD Publishing.
When requesting a correction, please mention this item's handle: RePEc:eee:reecon:v:68:y:2014:i:2:p:133-143. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.