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Threshold relationships among inflation, financial development, and growth

Michelle Barnes and Nicolas Duquette ()

Journal of Financial Transformation, 2006, vol. 17, 141-149

Abstract: This paper tests for and estimates relationships among inflation, financial market development (FMD), and growth. This trivariate relationship changes across a statistically robust inflation threshold of about 14%. Below 14%, the relationship between growth and FMD is positive; above 14%, the relationship between growth and inflation is negative. The interaction between FMD and inflation has a significant impact, however: below 14% there is a positive correlation between growth and inflation, but marginal increases in inflation impair the relationship between growth and FMD; above 14% marginal increases in inflation have little or no impact on this relationship. This suggests that the role of financial markets as a channel of economic growth is important and changes with the level of inflation.

Keywords: inflation; financial development; growth; threshold effects (search for similar items in EconPapers)
JEL-codes: E44 G21 O43 (search for similar items in EconPapers)
Date: 2006
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