Does Inflation Slow Long-Run Growth in India?

Author/Editor:

Kamiar Mohaddes ; Mehdi Raissi

Publication Date:

December 15, 2014

Electronic Access:

Download PDF. Use the free Adobe Acrobat Reader to view this PDF file

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 long-run relationship between consumer price index industrial workers (CPI-IW) inflation and GDP growth in India. We collect data on a sample of 14 Indian states over the period 1989–2013, and use the cross-sectionally augmented distributed lag (CSDL) approach of Chudik et al. (2013) as well as the standard panel ARDL method for estimation—to account for cross-state heterogeneity and dependence, dynamics and feedback effects. Our findings suggest that, on average, there is a negative long-run relationship between inflation and economic growth in India. We also find statistically-significant inflation-growth threshold effects in the case of states with persistently-elevated inflation rates of above 5.5 percent. This suggest the need for the Reserve Bank of India to balance the short-term growthinflation trade-off, in light of the long-term negative effects on growth of persistently-high inflation.

Series:

Working Paper No. 14/222

Subject:

English

Publication Date:

December 15, 2014

ISBN/ISSN:

9781498399982/1018-5941

Stock No:

WPIEA2014222

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

19

Please address any questions about this title to publications@imf.org