Inflation Anchoring and Growth: The Role of Credit Constraints
Sangyup Choi (),
Davide Furceri (),
Prakash Loungani () and
Myungkyu Shim ()
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Myungkyu Shim: Yonsei University
No GRU_2020_032, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit
Can inflation anchoring foster growth? To answer this question, we use panel data on sectoral growth for 22 manufacturing industries from 36 advanced and emerging market economies over 1990–2014 and employ a difference-in-difference 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-difference; central bank independence (search for similar items in EconPapers)
JEL-codes: E52 E63 O11 O43 O47 (search for similar items in EconPapers)
Pages: 55 pages
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:cth:wpaper:gru_2020_032
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