Inflation, financial intermediation and growth: the case of Egypt

Amr Hosny and Hamid Mohtadi ()

Middle East Development Journal, 2014, vol. 6, issue 1, 1-19

Abstract: There is now a consensus in the theoretical and the empirical literature that a nonlinear relationship exists between the rate of inflation and the rate of economic growth. Using a threshold regression technique, this paper re-examines this relationship and the critical role that financial intermediation plays in it. Data to examine our hypothesis are from Egypt. We find that inflation contributes positively to economic growth until it reaches a threshold rate of about 12%, after which it becomes detrimental to growth. We then show that such a nonlinear relation is connected to whether or not financial deepening has crossed a certain threshold level. Given these thresholds, a coordination of policies (especially monetary) and financial reform is needed to achieve success in economic growth.

Date: 2014
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DOI: 10.1080/17938120.2014.886422

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