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The Negative Inflation-Growth Effect: Theory and Evidence

Author

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  • Mark N. Harris

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne and Economics Department, Central European University, Hungary)

  • Max Gillman

    (Economics Department, Central European University, Hungary)

  • László Mátyás

    (Economics Department, Central European University, Hungary)

Abstract

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.

Suggested Citation

  • Mark N. Harris & Max Gillman & László Mátyás, 2001. "The Negative Inflation-Growth Effect: Theory and Evidence," Melbourne Institute Working Paper Series wp2001n12, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    • Handle: RePEc:iae:iaewps:wp2001n12
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    File URL: http://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp2001n12.pdf
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    References listed on IDEAS

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    3. Lumengo Bonga-Bonga & Beatrice Desiree Simo-Kengne, 2018. "Inflation and Output Growth Dynamics in South Africa: Evidence from the Markov Switching Vector Autoregressive Model," Journal of African Business, Taylor & Francis Journals, vol. 19(1), pages 143-154, January.
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    5. López-Villavicencio, Antonia & Mignon, Valérie, 2011. "On the impact of inflation on output growth: Does the level of inflation matter?," Journal of Macroeconomics, Elsevier, vol. 33(3), pages 455-464, September.

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