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Of Inflation and Growth Nexus in BRIMC Economies

Author

Listed:
  • Waseem Khadim

    (GC University, Lahore, Pakistan.)

  • Saddam Ilyas

    (GC University, Lahore, Pakistan.)

  • Bilal Mehmood

    (GC University, Lahore, Pakistan.)

Abstract

Purpose: This study aims to assess the nonlinearity in inflation-growth nexus for BRIMC economies. It also proposes a threshold level beyond which inflation becomes detrimental to growth.Methodology: Data for the period of 1970–2013 has been used to scrutinize the said nexus via dynamic panel cointegration techniques of: PMG, MG and DFE. Hausman test has been employed to choose comparatively efficient and consistent estimator among the above estimators. Findings: Our findings reveal that the relationship between economic growth and inflation within the linear frame work is significantly positive in the long run, but when we introduce a square term of inflation this relationship becomes negative though it still remains statistically significant. This sign switching behavior of inflation from positive to negative confirms the existence of non-linear relationship between inflation and economic growth in BRIMC economies. Therefore we have found out the threshold level of inflation for BRIMC economies which is based on a fixed-effect panel threshold model proposed by Hansen (1999). Our results show that inflation can hamper the growth of BRIMC economies if it exceeds the threshold level of 8.32%. Recommendations: However, below this threshold, inflation is beneficial for the long run economic growth.

Suggested Citation

  • 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.
  • Handle: RePEc:ijr:journl:v:4:y:2016:i:1:p:32-45
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    Keywords

    : Cointegration; Threshold model; Growth; Inflation;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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