Inflation Crises and Long-Run Growth

Michael Bruno and William Easterly

No 5209, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Recent literature suggests that long-run averages of growth and inflation are only weakly correlated and such correlation is not robust to exclusion of extreme inflation observations; inclusion of time series panel data has improved matters, but an aggregate parametric approach remains inconclusive. We propose a nonparametric definition of high inflation crises as periods when inflation is above 40 percent annually. Excluding countries with high inflation crises, we find no evidence of any consistent relationship between growth and inflation at any frequency. However, we find that growth falls sharply during discrete high inflation crises, then recovers surprisingly strongly after inflation falls. The fall in growth during crisis and recovery of growth after crisis tend to average out to close to zero (even slightly above zero), hence the lack of a robust cross-section correlation. Our findings could be consistent either with trend stationarity of output, in which inflation crises are purely cyclical phenomena, or with models in which crises have a favorable long-run purgative effect. Our findings do not support the view that reduction of high inflation carries heavy short-to-medium run output costs.

Date: 1995-08
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (127)

Published as Journal of Monetary Economics, Vol. 41, no. 1 (February 1998): 3-26.

Downloads: (external link)
http://www.nber.org/papers/w5209.pdf (application/pdf)

Related works:
Journal Article: Inflation crises and long-run growth (1998)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:5209

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w5209

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().