Threshold Effects in the Relationship Between Inflation and Growth

Author/Editor:

Abdelhak S Senhadji ; Mohsin S. Khan

Publication Date:

June 1, 2000

Electronic Access:

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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 reexamines the issue of the existence of threshold effects in the relationship between inflation and growth, using new econometric techniques that provide appropriate procedures for estimation and inference. The threshold level of inflation above which inflation significantly slows growth is estimated at 1–3 percent for industrial countries and 7–11 percent for developing countries. The negative and significant relationship between inflation and growth, for inflation rates above the threshold level, is quite robust with respect to the estimation method, perturbations in the location of the threshold level, the exclusion of high-inflation observations, data frequency, and alternative specifications.

Series:

Working Paper No. 00/110

Subject:

English

Publication Date:

June 1, 2000

ISBN/ISSN:

9781451853339/1018-5941

Stock No:

WPIEA1102000

Format:

Paper

Pages:

32

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