Groth effects of inflation in Europe: How low is too low, how high is too high?
Jesus Crespo Cuaresma () and
Vienna Economics Papers from University of Vienna, Department of Economics
This paper reassesses the impact of in°ation on long-term growth for a panel of 14 EU countries. While previous research focuses on a linear nexus or allows for a piecewise linear relationship with one single threshold, we take account of a more complex relationship. We use a theoretical framework that allows for an explicit distinction between level and growth e®ects of in°ation. The empirical estimates for the full EU sample con¯rm the hypothesis that the relationship between in°ation and growth is positive for very low in°ation rates (i.e. below an estimate of 1.6%), insigni¯cant thereafter and negative for high, two-digit in°ation levels. The estimate of the in°ation level that divides the insigni¯cant from the negative e®ect is found to be higher in the group of traditional cohesion countries than for the rest of the sample.
JEL-codes: E31 O40 O52 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:vie:viennp:0411
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