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Threshold Effects in the Relationship Between Inflation and Growth

Author

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  • Abdelhak S Senhadji
  • Mohsin S. Khan

Abstract

This paper reexamines the issue of the existence of threshold effects in the relationship between inflation and growth, using new econometric techniques that provide appropriate procedures for estimation and inference. The threshold level of inflation above which inflation significantly slows growth is estimated at 1–3 percent for industrial countries and 7–11 percent for developing countries. The negative and significant relationship between inflation and growth, for inflation rates above the threshold level, is quite robust with respect to the estimation method, perturbations in the location of the threshold level, the exclusion of high-inflation observations, data frequency, and alternative specifications.

Suggested Citation

  • Abdelhak S Senhadji & Mohsin S. Khan, 2000. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Working Papers 00/110, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:00/110
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    Keywords

    Inflation; Growth; Threshold Effects; inflation rates; inflation rate; effect of inflation; terms of trade;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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