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Nonparametric and semiparametric evidence on the long-run effects of inflation on growth

  • Andrea Vaona
  • Stefano Schiavo


Two major findings of the empirical literature on the connec tion between inflation and output growth is that their relationship is non linear and that there exists a threshold inflation level be low which inflation has a positive impact on growth and above which inflation has a negative impact on growth. In this paper we adopt both a nonparametric estimator and a semiparametric IV one to show that the first finding holds true even dropping the specification assumptions typical of parametric models. We also show that a threshold level does exist and it is around 12% for developed countries. Below this level inflation does not appear to have any substantial effect on growth.

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Paper provided by Department of Economics, University of Trento, Italia in its series Department of Economics Working Papers with number 0520.

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Date of creation: 2005
Date of revision:
Handle: RePEc:trn:utwpde:0520
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  1. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank.
  2. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
  3. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, vol. 56(4), pages 931-54, July.
  4. Anthony Philip Thirlwall & A.C. Barton, 1971. "Inflation and growth: the international evidence," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 24(98), pages 263-275.
  5. Max Gillman & Mark N. Harris & László Mátyás, 2004. "Inflation and growth: Explaining a negative effect," Empirical Economics, Springer, vol. 29(1), pages 149-167, January.
  6. repec:cup:cbooks:9780521586115 is not listed on IDEAS
  7. Michael Sarel, 1996. "Nonlinear Effects of Inflation on Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 199-215, March.
  8. Ruth Judson & Athanasios Orphanides, 1996. "Inflation, volatility and growth," Finance and Economics Discussion Series 96-19, Board of Governors of the Federal Reserve System (U.S.).
  9. A. Senhadji Semlali & Mohsin S. Khan, 2000. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Working Papers 00/110, International Monetary Fund.
  10. repec:cup:cbooks:9780521355643 is not listed on IDEAS
  11. Park, Sangin, 2003. "Semiparametric instrumental variables estimation," Journal of Econometrics, Elsevier, vol. 112(2), pages 381-399, February.
  12. Atish R. Ghosh & Steven Phillips, 1998. "Inflation, Disinflation, and Growth," IMF Working Papers 98/68, International Monetary Fund.
  13. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor, 1996. "Does Inflation Matter for Growth?," CEPR Discussion Papers 1503, C.E.P.R. Discussion Papers.
  14. Temple, Jonathan, 2000. " Inflation and Growth: Stories Short and Tall," Journal of Economic Surveys, Wiley Blackwell, vol. 14(4), pages 395-426, September.
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