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Nonlinear Effects of Inflationon Economic Growth

  • Michael Sarel
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    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.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 95/56.

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    Length: 26
    Date of creation: 01 Jun 1995
    Date of revision:
    Handle: RePEc:imf:imfwpa:95/56
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