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Nonlinear Effects of Inflationon Economic Growth

Author

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  • Mr. Michael Sarel

Abstract

This paper examines the possibility of nonlinear effects of inflation on economic growth. It finds evidence of a significant structural break in the function that relates economic growth to inflation. The break is estimated to occur when the inflation rate is 8 percent. Below that rate, inflation does not have any effect on growth, or it may even have a slightly positive effect. When the inflation rate is above 8 percent, however, the estimated effect of inflation on growth rates is significant, robust and extremely powerful. The paper also demonstrates that when the existence of the structural break is ignored, the estimated effect of inflation on growth is biased by a factor of three.

Suggested Citation

  • Mr. Michael Sarel, 1995. "Nonlinear Effects of Inflationon Economic Growth," IMF Working Papers 1995/056, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1995/056
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    Citations

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    Cited by:

    1. Wojciech Charemza & Svetlana Makarova & Imran Shah, 2015. "Making the most of high inflation," Applied Economics, Taylor & Francis Journals, vol. 47(34-35), pages 3723-3739, July.
    2. Miguel Ángel Mendoza-González & Alberto Mejía-Reyes & Luis Quintana-Romero, 2017. "Deseconomías de aglomeración, contaminación y sus efectos en la salud de la Zona Metropolitana del Valle de México. Un análisis con econometría espacial," Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), Colexio de Economistas de A Coruña, Spain and Fundación Una Galicia Moderna, vol. 1, pages 1-1, December.
    3. W. Adrián Risso & Edgar J. Sánchez Carrera, 2010. "Análisis de cointegración y valores umbrales entre la inflación y el crecimiento económico en México: 1970-2007," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 77-98, November.
    4. Raghbendra Jha & Tu Ngoc Dang, 2012. "Inflation variability and the relationship between inflation and growth," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 5(1), pages 3-17, July.
    5. Aribah Aslam, 2020. "The hotly debate of human capital and economic growth: why institutions may matter?," Quality & Quantity: International Journal of Methodology, Springer, vol. 54(4), pages 1351-1362, August.
    6. Sweidan, O.D., 2004. "Does Inflation Harm Economic Growth in Jordan?. An Econometric Analysis for the Period 1970-2000," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 1(2), pages 41-66.
    7. Shamim Ahmed & M. Golam Mortaza, 2010. "Inflation and Economic Growth in Bangladesh: 1981-2005," Working Papers id:3033, eSocialSciences.
    8. Kartaev, P. & Philippov, A. & Khazanov, A., 2016. "Inflation Targeting and Real GDP Dynamics: Cross-Country Evidence," Journal of the New Economic Association, New Economic Association, vol. 29(1), pages 107-128.
    9. Wojciech Charemza & Svetlana Makarova & Imran Shah, 2013. "Frequent episoded of high inflation and real effects," EcoMod2013 5478, EcoMod.
    10. Mircea Asandului & Dan Lupu, 2015. "The Inflation and Economic Growth: Evidence from Romania," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 11(3), pages 35-42, June.
    11. Růžena Vintrová, 2003. "Reálná konvergence - předpoklad plynulé integrace do Evropské unie [Real convergence - a presumption for a fluent integration into the European union]," Politická ekonomie, Prague University of Economics and Business, vol. 2003(1), pages 79-91.

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