Nonlinear Effects of Inflationon Economic Growth

Author/Editor:

Michael Sarel

Publication Date:

June 1, 1995

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This 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.

Series:

Working Paper No. 1995/056

Subject:

Inflation International trade Prices Terms of trade

Notes:

Also published in Staff Papers, Vol. 43, No. 1, March 1996.

English

Publication Date:

June 1, 1995

ISBN/ISSN:

9781451968316/1018-5941

Stock No:

WPIEA0561995

Pages:

26

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