IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/4422.html
   My bibliography  Save this paper

Inflation and Growth in an Integrated Approach

Author

Listed:
  • Michael Bruno

Abstract

Macroeconomic factors in general, and the macropolicy response to common external shocks (such as oil prices and real interest rates) in particular, have in recent decades played a dominant role in countries' protracted growth crises as well as in growth renewal and its long-run sustainability. The paper attempts to construct and apply a simple framework for the joint empirical analysis of growth and inflation, starting from a rudimentary short-term AS and AD framework that is 'averaged' into the medium and long run. For the industrial countries through the 1970s and 1980s such analysis highlights the existence of a marked 20 year inflation and growth 'loop', extending beyond the conventional business cycles, with well identifiable phases of crisis entry, disinflation and partial growth recovery. The interaction of macropolicy response to shocks with structural (mainly labor market) features of economies account for differences across countries both in the depth of the deterioration phase as well as in the gradual recovery, for which a panel regression provides some of the links between inflation, economic activity, profits and investment renewal. The second part of the paper (Section IV) applies similar tools and uncovers analogous, though much more dramatic, 15-20 year loops, in the crisis and recovery of a group of countries in Latin America (as well as Israel). Likewise the strong macro path-dependence of growth in middle-income countries (with cross-country differences in structure and social cohesion) is borne out by comparisons with countries (both in the same region and outside it) that faced similar external shocks yet exhibited much milder 'loops'. The paper ends with a brief reference to some analogies with the sequencing of the cycle of growth crisis, adjustment and structural reform in Eastern Europe.

Suggested Citation

  • Michael Bruno, 1993. "Inflation and Growth in an Integrated Approach," NBER Working Papers 4422, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4422
    Note: IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w4422.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Bayoumi, Tamim & Eichengreen, Barry, 1994. "Macroeconomic Adjustment under Bretton Woods and the Post-Bretton-Woods Float: An Impulse-Response Analysis," Economic Journal, Royal Economic Society, vol. 104(425), pages 813-827, July.
    3. Robert S. Pindyck & Andrés Solimano, 1993. "Economic Instability and Aggregate Investment," NBER Chapters,in: NBER Macroeconomics Annual 1993, Volume 8, pages 259-318 National Bureau of Economic Research, Inc.
    4. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
    5. Stock, James H & Watson, Mark W, 1988. "Variable Trends in Economic Time Series," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 147-174, Summer.
    6. Rudiger Dornbusch & Sebastian Edwards, 1991. "The Macroeconomics of Populism in Latin America," NBER Books, National Bureau of Economic Research, Inc, number dorn91-1, January.
    7. Persson, Torsten & Tabellini, Guido, 1992. "Growth, distribution and politics," European Economic Review, Elsevier, vol. 36(2-3), pages 593-602, April.
    8. Saint-Paul, Gilles, 1993. "Productivity growth and the structure of the business cycle," European Economic Review, Elsevier, vol. 37(4), pages 861-883, May.
    9. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    10. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
    11. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    12. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, vol. 29(3), pages 1110-1148, September.
    13. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    14. Stanley Fischer & Franco Modigliani, 1978. "Towards an understanding of the real effects and costs of inflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 114(4), pages 810-833, December.
    15. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
    16. Roland Benabou, 1988. "Search, Price Setting and Inflation," Review of Economic Studies, Oxford University Press, vol. 55(3), pages 353-376.
    17. Berg, Andrew & Sachs, Jeffrey, 1988. "The debt crisis structural explanations of country performance," Journal of Development Economics, Elsevier, vol. 29(3), pages 271-306, November.
    18. Bruno, M., 1991. "High Inflation and the Nominal Anchors of an Open Economy," Princeton Studies in International Economics 183, International Economics Section, Departement of Economics Princeton University,.
    19. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
    20. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-1155, December.
    21. Dornbusch, Rudiger, 1990. "Policies to Move from Stabilization to Growth," CEPR Discussion Papers 456, C.E.P.R. Discussion Papers.
    22. Dickens, William T., 1982. "The productivity crisis: Secular or cyclical?," Economics Letters, Elsevier, vol. 9(1), pages 37-42.
    23. Galor, Oded & Tsiddon, Daniel, 1992. "Transitory Productivity Shocks and Long-Run Output," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 921-933, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. William Easterly, 1995. "Explaining Miracles: Growth Regressions Meet the Gang of Four," NBER Chapters,in: Growth Theories in Light of the East Asian Experience, NBER-EASE Volume 4, pages 267-299 National Bureau of Economic Research, Inc.
    2. Blanca Sanchez-Robles, 1998. "Macroeconomic stability and economic growth: the case of Spain," Applied Economics Letters, Taylor & Francis Journals, vol. 5(9), pages 587-591.
    3. Hakan Yilmazkuday, 2013. "Inflation Thresholds and Growth," International Economic Journal, Taylor & Francis Journals, vol. 27(1), pages 1-10, March.
    4. Ciżkowicz, Piotr & Rzońca, Andrzej, 2010. "Inflation and corporate investment in selected OECD countries in the years 1960-2005 – an empirical analysis," MPRA Paper 29846, University Library of Munich, Germany.
    5. Muhammad Ayyoub, 2016. "Inflation-growth nexus in developing economies: New empirical evidence from a dis-aggregated approach," Economics working papers 2016-02, Department of Economics, Johannes Kepler University Linz, Austria.
    6. Fernando Lefort & Klaus Schmidt-Hebbel, 2002. "Indexation, Inflation and Monetary Policy: An Overview," Central Banking, Analysis, and Economic Policies Book Series,in: Fernando Lefort & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Serie (ed.), Indexation, Inflation and MOnetary Policy, edition 1, volume 2, chapter 1, pages 001-018 Central Bank of Chile.
    7. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    8. Dabus, C. & Viego, V., 2003. "Inflación, Precios Relativos y Crecimiento: Evidencia de América Latina," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 21, pages 91-107, Abril.
    9. Javier Andrés & Ignacio Hernando & J. David López-Salido, 1999. "Assessing the benefits of price stability: The international experience," Estudios Económicos, Banco de España;Estudios Económicos Homepage, number 69, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4422. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.