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Inflation and human capital formation: theory and panel data evidence

  • Freddy Heylen
  • Arne Schollaert
  • Gerdie Everaert
  • Lorenzo Pozzi

Existing monetary growth theories predict either negative or neutral effects from inflation on human capital. In this paper we develop a simple alternative model, which can generate positive effects. Our empirical analysis for 93 countries in 1975-1995 tends to confirm these positive effects. Using recent GMM panel data procedures, we find that rising inflation basically stimulates human capital. A robust negative effect can be observed only at extremely high inflation rates. A representative threshold may be 100%. For inflation rates below 15%, the effect of rising inflation seems insignificant. The latter result can also be rationalized from our model.

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Paper provided by Money Macro and Finance Research Group in its series Money Macro and Finance (MMF) Research Group Conference 2003 with number 43.

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Date of creation: 27 Sep 2004
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Handle: RePEc:mmf:mmfc03:43
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