Nonlinear Effects of Inflationon Economic GrowthThis paper examines the possibility of nonlinear effects of inflation on economic growth. It finds evidence of a significant structural break in the function that relates economic growth to inflation. The break is estimated to occur when the inflation rate is 8 percent. Below that rate, inflation does not have any effect on growth, or it may even have a slightly positive effect. When the inflation rate is above 8 percent, however, the estimated effect of inflation on growth rates is significant, robust and extremely powerful. The paper also demonstrates that when the existence of the structural break is ignored, the estimated effect of inflation on growth is biased by a factor of three. |
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1.7 percentage points ATOT average growth rate Burkina Faso coefficient of log database dependent variable different inflation groups effect of inflation effect on economic effect on growth episodes of high Estimated coefficient estimated effect estimation is OLS explanatory variables F-test function that relates Ghana growth to inflation Haiti high inflation implicit GDP deflator income per person inflation effects inflation is high inflation is low inflation observations inflation on economic inflation on growth investment rate keep inflation logarithmic main test method of estimation Myanmar negative correlation nonlinear effects number of observations observations is 348 output per person percent confidence level period dummies period-dummies possibility of nonlinear rate of inflation rate of output relates economic growth relates growth rates report 86 country-dummies reported in parenthesis results of Regression Seychelles specific numerical target Sri Lanka structural break occurs supply shocks Suriname t-statistics are reported target for policy terms of trade