Inflation, complexity and endogenous growth

Tiago Sequeira, Pedro Gil and Óscar Afonso

Applied Economics, 2021, vol. 53, issue 23, 2631-2646

Abstract: In this article, we argue that inflation increases complexity pertaining to knowledge production (or R&D). Then, we expand a recently developed complexity index based on entropy to include the effect of inflation. As a result of this new mechanism in an endogenous growth model, inflation is no longer superneutral. In the model, inflation can decrease economic growth in a non-linear way, a sudden upward shock on inflation can severely hurt economic growth and an inflation cut can be responsible for a take-off. These effects are illustrated quantitatively.

Date: 2021
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Working Paper: Inflation, Complexity and Endogenous Growth (2019)
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DOI: 10.1080/00036846.2020.1864274

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