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Staff Papers Logo    December 1998
Volume 45, Number 4
Warning: Inflation May Be Harmful to Your Growth
By Atish Ghosh and Steven Phillips

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Abstract: While few doubt that very high inflation is bad for growth, there is less agreement about the effects of moderate inflation. Using panel regressions and allowing for a nonlinear specification, this paper finds a statistically and economically significant negative relation between inflation and growth, which holds robustly at all but the lowest inflation rates. A "decision-tree" technique identifies inflation as one of the most important determinants of growth. Finally, short-run growth costs of disinflation are only relevant for the most severe disinflations, or when the initial inflation rate is well within the single-digit range. [JEL E31,O40]

1998 International Monetary Fund