Productivity and Inflation

Tim Bulman and John Simon
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Tim Bulman: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: This paper examines the effect of inflation on productivity growth in Australia. Broad historical correlations suggest a negative relationship between inflation and aggregate productivity growth. The low-frequency nature of the relationship, however, means it is difficult to establish statistical causation at the aggregate level. We look at the industry-level relationships in an effort to overcome this limitation and to understand the relationship better. On this level we find clearly significant results with industry-level inflation explaining industry productivity. We also find that the relationship varies by industry, with the strongest evidence of a negative relationship being found in the cases of concentrated industries, i.e., those dominated by large firms. Finally, we find evidence that the negative effects of inflation on productivity do not operate solely through a reduction in capital accumulation but also through a reduction in multifactor productivity growth.

Keywords: inflation; productivity; industrial structure (search for similar items in EconPapers)
JEL-codes: D23 D24 E31 L11 L16 (search for similar items in EconPapers)
Date: 2003-09
New Economics Papers: this item is included in nep-eff
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2003-10

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