MACROECONOMIC INSTABILITY AND GROWTH: Panel Data Analysis of Causal and Cyclical Patterns

Mahmood Arai () and Mats Kinnwall ()
Additional contact information
Mats Kinnwall: Handelsbanken Markets, Stockholm, Postal: Handelsbanken Markets, 106 70 Stockholm, Sweden

No 1997:8, Research Papers in Economics from Stockholm University, Department of Economics

Abstract: Empirical foundations for the view that high central government deficits and inflation impair growth are examined using annual data for 115 countries over the period 1960-1995. Taking into account country heterogeneity and time-specific symmetric shocks, we estimate intra-country effects of past inflation and budget deficits on growth. WE find no evidence suggesting growth costs of macroeconomic instability. Rather our results indicate reversed causality: the rate of growth determines inflation and deficits. On the other hand, there is a negative correlation between contemporaneous intra-country inflation and growth for two subperiods: the 1970s/early 1980s, influenced by adverse supply shocks, and the early 1990s characterised by adverse demand shocks. We argue that these results are compatible with a standard, stochastic macro theoretical framework.

Keywords: Growth; Inflation; Budget Deficits (search for similar items in EconPapers)
JEL-codes: O11 O57 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pub
Date: 1998-04-17
View list of references

Downloads: (external link)
http://www.ne.su.se/paper/wp97_08.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:hhs:sunrpe:1997_0008

Access Statistics for this paper

More papers in Research Papers in Economics from Stockholm University, Department of Economics
Address: Department of Economics, Stockholm, S-106 91 Stockholm, Sweden
Contact information at EDIRC.
Series data maintained by Sten Nyberg ().