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Inflation and growth: new evidence from a dynamic panel threshold analysis

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  • Stephanie Kremer
  • Alexander Bick
  • Dieter Nautz

Abstract

We introduce a dynamic panel threshold model to estimate inflation thresholds for long-term economic growth. Advancing on Hansen (J Econom 93:345–368, 1999 ) and Caner and Hansen (Econom Theory 20:813–843, 2004 ), our model allows the estimation of threshold effects with panel data even in case of endogenous regressors. The empirical analysis is based on a large panel-dataset including 124 countries. For industrialized countries, our results confirm the inflation targets of about 2% set by many central banks. For non-industrialized countries, we estimate that inflation rates exceeding 17% are associated with lower economic growth. Below this threshold, however, the correlation remains insignificant. Copyright Springer-Verlag 2013

Suggested Citation

  • Stephanie Kremer & Alexander Bick & Dieter Nautz, 2013. "Inflation and growth: new evidence from a dynamic panel threshold analysis," Empirical Economics, Springer, vol. 44(2), pages 861-878, April.
  • Handle: RePEc:spr:empeco:v:44:y:2013:i:2:p:861-878
    DOI: 10.1007/s00181-012-0553-9
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    More about this item

    Keywords

    Inflation thresholds; Inflation and growth; Dynamicpanel threshold model; C72; C23; O40;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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