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From Inflation Targeting to achieving Economic Growth

Author

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  • César Carrera

    (Banco Central de Reserva del Perú y Universidad del Pacífico)

Abstract

Most economists agree that the relationship between long-run economic growth and inflation is negative. It is well documented that countries with inflation target achieve lower levels of inflation. But there is no study that relates inflation target and growth. I focus this study in identifying this relationship. I follow Sala-i-Martin (1997) and sample 45 countries that have an inflation target. This variable is then evaluated by controlling for three variables that are strongly correlated with economic growth and different subsets that belong to a set of variables that the literature agrees in being correlated with long-run economic growth. This strategy allows me to have a distribution of the parameter that captures a link between inflation target and growth. My results suggest that such effect, if any, is slightly negative.

Suggested Citation

  • César Carrera, 2017. "From Inflation Targeting to achieving Economic Growth," Working Papers 92, Peruvian Economic Association.
    • Handle: RePEc:apc:wpaper:2017-092
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    References listed on IDEAS

    as
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    3. Demir, Banu & Yigit, Taner M., 2008. "Announcements and credibility under inflation targeting," Economics Letters, Elsevier, vol. 100(2), pages 249-253, August.
    4. Carmen Fernandez & Eduardo Ley & Mark F. J. Steel, 2001. "Model uncertainty in cross-country growth regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(5), pages 563-576.
    5. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
    6. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2010. "The worldwide governance indicators : methodology and analytical issues," Policy Research Working Paper Series 5430, The World Bank.
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    More about this item

    Keywords

    Inflation target; inflation; growth;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean

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