The Relationship between Inflation and Growth:A Panel Smooth Transition Regression Approach for Developed and Developing Countries

Danilo Trupkin and Raul Ibarra

No 1107, Documentos de Trabajo/Working Papers from Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo.

Abstract: This paper studies the existence for a set of countries of an inflation threshold above which its effect on economic growth is negative, considering the speed of transition from one inflation regime to the other. Using a panel data set of above 120 countries for the period after the Second World War, we apply a panel smooth transition regression (PSTR) model with fixed effects. The estimated threshold of the inflation rate for industrialized countries is 4.1%, while for non-industrialized countries the threshold is 19.1%. The speed of transition is relatively smooth in the first group, but for developing economies inflation rapidly has negative effects on growth when it is near the threshold. In addition, we find that the in ation threshold falls to 7.9% by selecting a reduced group of developing countries, according to a measure associated with institutional quality.

Keywords: Inflation; economic growth; treshold effects; smooth transition. (search for similar items in EconPapers)
JEL-codes: C33 E31 O40 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (18)

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https://www2.um.edu.uy/fcee_papers/2011/working_paper_um_cee_2011_07.pdf (application/pdf)

Related works:
Journal Article: Reexamining the relationship between inflation and growth: Do institutions matter in developing countries? (2016)
Working Paper: The Relationship between Inflation and Growth. A Panel Smooth Transition Regression Approach for Developed and Developing Countries (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:mnt:wpaper:1107

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