IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Modelling the Impact of Inflation on Economic Growth for Countries with Different Levels of Economic Freedom

Listed author(s):
  • Klachkova, Olga A.

    (Lomonosov Moscow State University)

Registered author(s):

    The article examines the impact of inflation on economic growth for countries with different levels of economic freedom basing on the data collected in 182 countries during the period from 1981 to 2015. The countries are divided into groups through clustering. The estimates obtained in the framework of threshold regression with fixed effects indicate that if a country has high levels of the rule of law, regulatory efficiency, and open markets, the level of government intervention in the economy determines the impact of inflation on economic growth: in the countries with high levels of government intervention the threshold level of inflation is higher (approximately 10%), and its impact is more negative if the threshold is exceeded; in the countries with low levels of government intervention the threshold level is lower (approximately 2%), and the negative impact of inflation is softer if the threshold is exceeded. In the countries with low economic freedom (and with high levels of government intervention) the threshold level is low (approximately 3%), but inflation rates higher than the threshold lead to serious negative consequences.The article also provides a modification of the Solow model of economic growth. Total savings are divided into private and public. Private investors are assumed to be risk-averse, therefore their saving rate and level of investment depends negatively on the level of risk in the economy described by inflation. Public investors are assumed to be risk-neutral. Thus, inflation leads to a sharp decrease in private and a gradual decline in public investment, which leads to lower rates of economic growth depending on the ratio of private and public investors in the economy.

    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.

    File URL: ftp://w82.ranepa.ru/rnp/ecopol/ep1752.pdf
    Download Restriction: no

    Article provided by Russian Presidential Academy of National Economy and Public Administration in its journal Economic Policy.

    Volume (Year): 5 (2017)
    Issue (Month): (October)
    Pages: 22-41

    as
    in new window

    Handle: RePEc:rnp:ecopol:ep1752
    Contact details of provider: Postal:
    82, Vernadsky pr., 117571, Moscow

    Phone: +7 (499) 956 95 86
    Fax: (095) 564-85-80
    Web page: http://www.rane.ru/
    Email:


    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:rnp:ecopol:ep1752. 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: (RANEPA maintainer)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.