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Relationship between inflation and economic growth in Azerbaijani economy: is there any threshold effect?

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  • Hasanov, Fakhri

Abstract

The study examines possibility of threshold effect of inflation on economic growth over the period of 2000-2009. Estimated threshold model indicates that there is a non-linear relationship between economic growth and inflation in the Azerbaijani economy and threshold level of inflation for GDP growth is 13 percent. Below threshold level inflation has statistically significant positive effect on GDP growth, but this positive relationship becomes negative one when inflation exceeds 13 percent. Results of the study may be useful for monetary policymakers in terms of keeping inflation below the threshold level of 13 percent to prevent its negative effect on economic growth.

Suggested Citation

  • Hasanov, Fakhri, 2011. "Relationship between inflation and economic growth in Azerbaijani economy: is there any threshold effect?," MPRA Paper 33494, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:33494
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    File URL: https://mpra.ub.uni-muenchen.de/33494/3/MPRA_paper_33494.pdf
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    References listed on IDEAS

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    1. Martin Feldstein, 1983. "Inflation, Tax Rules, and Investment: Some Econometric Evidence," NBER Chapters,in: Inflation, Tax Rules, and Capital Formation, pages 243-286 National Bureau of Economic Research, Inc.
    2. Nasir Iqbal & Saima Nawaz, 2009. "Investment, Inflation and Economic Growth Nexus," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 48(4), pages 863-874.
    3. Stephanie Kremer & Alexander Bick & Dieter Nautz, 2013. "Inflation and growth: new evidence from a dynamic panel threshold analysis," Empirical Economics, Springer, vol. 44(2), pages 861-878, April.
    4. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
    5. Michael Sarel, 1996. "Nonlinear Effects of Inflation on Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 199-215, March.
    6. David, Drukker & Pedro, Gomis-Porqueras & Paula, Hernandez -erme, 2005. "Threshold effects in the relationship between inflation and growth: a new panel-data approach," MPRA Paper 38225, University Library of Munich, Germany.
    7. FABAYO, Joseph Ademola & AJILORE, Olubanjo Taiwo, 2006. "Inflation: How Much Is Too Much For Economic Growth in Nigeria," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 41(2), pages 129-147, December.
    8. Qaiser Munir & Kasim Mansur, 2009. "Non-Linearity between Inflation Rate and GDP Growth in Malaysia," Economics Bulletin, AccessEcon, vol. 29(3), pages 1555-1569.
    9. Raphael A Espinoza & Ananthakrishnan Prasad & Gene L. Leon, 2010. "Estimating The Inflation–Growth Nexus—A Smooth Transition Model," IMF Working Papers 10/76, International Monetary Fund.
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    More about this item

    Keywords

    Azerbaijani Economy; Inflation; Economic Growth; Gross Fixed Capital Formation; Threshold Level;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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