Nonlinear Effects of Inflationon Economic Growth

Michael Sarel

No 1995/056, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the possibility of nonlinear effects of inflation on economic growth. It finds evidence of a significant structural break in the function that relates economic growth to inflation. The break is estimated to occur when the inflation rate is 8 percent. Below that rate, inflation does not have any effect on growth, or it may even have a slightly positive effect. When the inflation rate is above 8 percent, however, the estimated effect of inflation on growth rates is significant, robust and extremely powerful. The paper also demonstrates that when the existence of the structural break is ignored, the estimated effect of inflation on growth is biased by a factor of three.

Keywords: WP; growth rate; inflation coefficient; terms of trade data; effect of inflation; inflation effect; rate of inflation; inflation group; inflation spectrum; Inflation; Terms of trade (search for similar items in EconPapers)
Pages: 26
Date: 1995-06-01
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Citations: View citations in EconPapers (11)

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