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Making the most of high inflation

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  • Wojciech Charemza
  • Svetlana Makarova
  • Imran Shah

Abstract

This article examines the relationship between the real effects of inflation and its level in countries with frequent episodes of high inflation. The real effects are computed as asymmetric impulse responses of output to inflation separately in the regimes with different signs of the differences between the expected inflation and the predicted output-neutral inflation. It is found that, with the increase in inflation, such effects increase in the regime with the positive sign, relatively to the effects in the regime with the negative sign. It is also shown that this finding is valid for most countries with high inflation episodes, where inflation is greater than 4.8% for at least 25% of quarterly observations. This leads to a simple policy prescription that, in economies with frequent high inflation episodes, anti-inflationary monetary decisions are least damaging for output if undertaken in the periods when the difference between the expected and output-neutral inflation is negative.

Suggested Citation

  • Wojciech Charemza & Svetlana Makarova & Imran Shah, 2015. "Making the most of high inflation," Applied Economics, Taylor & Francis Journals, vol. 47(34-35), pages 3723-3739, July.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:34-35:p:3723-3739
    DOI: 10.1080/00036846.2015.1021462
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    1. Monetary stimulus in high-inflation regimes
      by Economic Logician in Economic Logic on 2013-03-06 21:17:00

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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