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Warning: Inflation May Be Harmful to Your Growth

  • Atish Ghosh

    (International Monetary Fund)

  • Steven Phillips

    (International Monetary Fund)

While few doubt that very high inflation is bad for growth, there is less agreement about the effects of moderate inflation. Using panel regressions and allowing for a nonlinear specification, this paper finds a statistically and economically significant negative relationship between inflation and growth, which holds robustly at all but the lowest inflation rates. A "decision-tree" technique identifies inflation as one of the most important determinants of growth. Finally, short-run growth costs of disinflation are only relevant for the most severe disinflations, or when the initial inflation rate is well within the single-digit range.

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Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

Volume (Year): 45 (1998)
Issue (Month): 4 (December)
Pages: 672-710

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Handle: RePEc:pal:imfstp:v:45:y:1998:i:4:p:672-710
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