IDEAS home Printed from https://ideas.repec.org/p/rba/rbardp/rdp2003-10.html
   My bibliography  Save this paper

Productivity and Inflation

Author

Listed:
  • Tim Bulman

    (Reserve Bank of Australia)

  • John Simon

    (Reserve Bank of Australia)

Abstract

This paper examines the effect of inflation on productivity growth in Australia. Broad historical correlations suggest a negative relationship between inflation and aggregate productivity growth. The low-frequency nature of the relationship, however, means it is difficult to establish statistical causation at the aggregate level. We look at the industry-level relationships in an effort to overcome this limitation and to understand the relationship better. On this level we find clearly significant results with industry-level inflation explaining industry productivity. We also find that the relationship varies by industry, with the strongest evidence of a negative relationship being found in the cases of concentrated industries, i.e., those dominated by large firms. Finally, we find evidence that the negative effects of inflation on productivity do not operate solely through a reduction in capital accumulation but also through a reduction in multifactor productivity growth.

Suggested Citation

  • Tim Bulman & John Simon, 2003. "Productivity and Inflation," RBA Research Discussion Papers rdp2003-10, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp2003-10
    as

    Download full text from publisher

    File URL: http://www.rba.gov.au/publications/rdp/2003/pdf/rdp2003-10.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    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. Jarrett, J Peter & Selody, Jack G, 1982. "The Productivity-Inflation Nexus in Canada, 1963-1979," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 361-367, August.
    3. Ram, Rati, 1984. "Causal Ordering across Inflation and Productivity Growth in the Post-war United States," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 472-477, August.
    4. David Smyth, 1995. "The supply side effects of inflation in the United States: evidence from multifactor productivity," Applied Economics Letters, Taylor & Francis Journals, vol. 2(12), pages 482-483.
    5. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    6. Olivier Blanchard & John Simon, 2001. "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 135-174.
    7. David Gruen & Tim Robinson & Andrew Stone, 2002. "Output Gaps in Real Time: Are They Reliable Enough to Use for Monetary Policy?," RBA Research Discussion Papers rdp2002-06, Reserve Bank of Australia.
    8. John Simon & Sharon Wardrop, 2002. "Australian Use of Information Technology and its Contribution to Growth," RBA Research Discussion Papers rdp2002-02, Reserve Bank of Australia.
    9. Norman Cameron & Derek Hum & Wayne Simpson, 1996. "Stylized Facts and Stylized Illusions: Inflation and Productivity Revisited," Canadian Journal of Economics, Canadian Economics Association, vol. 29(1), pages 152-162, February.
    10. Andrew J. Buck & Felix Fitzroy, 1988. "Inflation and Productivity Growth in the Federal Republic of Germany," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 10(3), pages 428-444, March.
    11. Clark, Peter K, 1982. "Inflation and the Productivity Decline," American Economic Review, American Economic Association, vol. 72(2), pages 149-154, May.
    12. Argia M. Sbordone & Kenneth N. Kuttner, 1994. "Does inflation reduce productivity?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-14.
    13. Tsionas, Efthymios G., 2001. "Euro-land: any good for the European South?," Journal of Policy Modeling, Elsevier, vol. 23(1), pages 67-81, January.
    14. David F. Hendry, 2001. "Modelling UK inflation, 1875-1991," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 255-275.
    15. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-334, June.
    16. Baltagi, Badi H & Griffin, James M & Rich, Daniel P, 1995. "The Measurement of Firm-Specific Indexes of Technical Change," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 654-663, November.
    17. Donald Freeman & David Yerger, 2000. "Does inflation lower productivity? Time series evidence on the impact of inflation on labor productivity in 12 OECD nations," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 28(3), pages 315-332, September.
    18. Efthymios Tsionas, 2003. "Inflation and Productivity: Empirical Evidence from Europe," Review of International Economics, Wiley Blackwell, vol. 11(1), pages 114-129, February.
    19. Jakob Madsen & Richard Damania, 2001. "Labour Demand and Wage-induced Innovations: Evidence from the OECD countries," International Review of Applied Economics, Taylor & Francis Journals, vol. 15(3), pages 323-334.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    inflation; productivity; industrial structure;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:rba:rbardp:rdp2003-10. 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: (Paula Drew) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/rbagvau.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.