Threshold Effects of Inflation on Growth in the Western Balkans

Valdrin Misiri () and Besnik Fetai ()

Journal Global Policy and Governance, 2022, vol. 11, issue 1, 21-34

Abstract: The research study examines the relationship between inflation and economic growth in the Western Balkans from 2000 to 2020. This study seeks to find and determine the inflation threshold levels, where the inflation level has a positive or insignificant impact on economic growth below a specific stage or point but hinders the economic growth of Western Balkan countries above this level or point. As a result, we employ a variety of econometric models and approaches for this goal, including OLS, fixed, random effects, and Hausman Taylor IV. The study’s findings revealed a statistically significant negative and non-linear relationship between inflation and economic growth, indicating that the inflation threshold is 3.90 percent, with any level above 3.90 percent impeding or negatively affecting economic growth in the Western Balkans and vice versa.The study provides reliable and consistent findings regarding the influence of the inflation threshold level on the economic growth of Western Balkan countries over the studied period. It presents vital and valuable information to the governments of these countries about inflation levels, where a specific rise in inflation affects these countries’ economic progress.

Keywords: Inflation; threshold; growth; Hausman Taylor (search for similar items in EconPapers)
Date: 2022
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