Cyclical and causal patterns of inflation and GDP growth

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Empirical foundations for the view that high inflation impairs GDP growth are examined using annual data for 115 countries over the period 1960-1995. Taking into account country heterogeneity and time-specific symmetric shocks, as well as endogeneity of inflation and dynamics of GDP growth, dynamic panel-data models of the effects of inflation on growth are estimated. No evidence is found supporting the view that inflation is in general harmful to GDP growth. On the other hand, there is a negative correlation between contemporaneous intra-country inflation and growth for periods characterized by positive oil-price shocks.

Document Type: Research Article


Affiliations: 1: Department of Economics Stockholm University SE-106 91 Stockholm Sweden 2: Handelsbanken Markets Stockholm

Publication date: January 1, 2004

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