Inflation anchoring and growth: The role of credit constraints

Sangyup Choi, Davide Furceri, Prakash Loungani and Myungkyu Shim

Journal of Economic Dynamics and Control, 2022, vol. 134, issue C

Abstract: Can inflation anchoring foster growth? To answer this question, we use panel data on sectoral growth for 22 manufacturing industries from 39 advanced and emerging market economies over 1990–2014 and employ a difference-in-differences strategy based on the theoretical prediction that higher inflation uncertainty particularly depresses investment in industries that are more credit constrained. Industries characterized by high external financial dependence, liquidity needs, and R&D intensity, and low asset tangibility, tend to grow faster in countries with well-anchored inflation expectations. The results, based on an IV approach—using indicators of monetary policy transparency and central bank independence as instruments—confirm our findings.

Keywords: Industry growth; Inflation anchoring; Inflation forecasts; Credit constraints; Difference-in-differences; Central bank independence (search for similar items in EconPapers)
JEL-codes: E52 E63 O11 O43 O47 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Inflation Anchoring and Growth: The Role of Credit Constraints (2021)
Working Paper: Inflation Anchoring and Growth: The Role of Credit Constraints (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:134:y:2022:i:c:s0165188921002141

DOI: 10.1016/j.jedc.2021.104279

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