Nonlinear Effects of Inflationon Economic Growth
June 1, 1995
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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.
Subject: Inflation, International trade, Prices, Terms of trade
Keywords: effect of inflation, growth rate, Inflation, inflation coefficient, inflation effect, inflation group, inflation spectrum, rate of inflation, Terms of trade, terms of trade data, WP
Pages:
26
Volume:
1995
DOI:
Issue:
056
Series:
Working Paper No. 1995/056
Stock No:
WPIEA0561995
ISBN:
9781451968316
ISSN:
1018-5941
Notes
Also published in Staff Papers, Vol. 43, No. 1, March 1996.
