MACROECONOMIC INSTABILITY AND GROWTH: Panel Data Analysis of Causal and Cyclical Patterns
Empirical foundations for the view that high central government deficits and inflation impair growth are examined using annual data for 115 countries over the period 1960-1995. Taking into account country heterogeneity and time-specific symmetric shocks, we estimate intra-country effects of past inflation and budget deficits on growth. WE find no evidence suggesting growth costs of macroeconomic instability. Rather our results indicate reversed causality: the rate of growth determines inflation and deficits. On the other hand, there is a negative correlation between contemporaneous intra-country inflation and growth for two subperiods: the 1970s/early 1980s, influenced by adverse supply shocks, and the early 1990s characterised by adverse demand shocks. We argue that these results are compatible with a standard, stochastic macro theoretical framework.
|Date of creation:||17 Apr 1998|
|Contact details of provider:|| Postal: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden|
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- Robert J. Barro, 2013.
"Inflation and Economic Growth,"
Annals of Economics and Finance,
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- Stanley Fischer & Franco Modigliani, 1978. "Towards An Understanding of the Real Effects and Costs of Inflation," NBER Working Papers 0303, National Bureau of Economic Research, Inc.
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- Blanchard, Olivier Jean, 1990. "Why does money affect output? A survey," Handbook of Monetary Economics,in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 15, pages 779-835 Elsevier.
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