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Inflation and Growth: Some Theory and Evidence

  • Max Gillman

    (Central European University, Department of Economics)

  • Mark Harris

    (Melbourne Institute of Applied Economic and Social Research, the University of Melbourne)

  • László Mátyás

    (Central European University, Department of Economics)

The paper presents a monetary model of endogenous growth and specifies an econometric model consistent with it. The economic model suggests a negative inflation-growth effect, and one that is stronger at lower levels of inflation. Empirical evaluation of the model is based on a large panel of OECD and APEC member countries over the years 1961-1997. The hypothesized negative inflation effect is found comprehensively for the OECD countries to be significant and, as in the theory, to increase marginally as the inflation rate falls. For APEC countries, the results from using instrumental variables also show significant evidence of a similar behavior.

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Paper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number D5-1.

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Date of creation: Mar 2002
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Handle: RePEc:cpd:pd2002:d5-1
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  1. V.V. Chari & Larry E. Jones & Rodolfo E. Manuelli, 1996. "Inflation, growth, and financial intermediation," Review, Federal Reserve Bank of St. Louis, issue May, pages 41-58.
  2. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May.
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  13. Ahmed, Shaghil & Rogers, John H., 2000. "Inflation and the great ratios: Long term evidence from the U.S," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 3-35, February.
  14. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers 568, China Economics and Management Academy, Central University of Finance and Economics.
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  18. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-20, April.
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  20. Casey B. Mulligan & Xavier Sala-i-Martin, 2000. "Extensive Margins and the Demand for Money at Low Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 961-991, October.
  21. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
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