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Estimating The Inflation–Growth Nexus—A Smooth Transition Model, Raphael Espinoza, Ananthakrishnan Prasad, Gene Leon

Abstract
Motivated by the global inflation episode of 2007-08 and concern that high levels of inflation could undermine growth, this paper uses a panel of 165 countries and data for 1960-2007 to revisit the nexus between inflation and growth. We use a smooth transition model to investigate the speed at which inflation beyond a threshold becomes harmful to growth, an important consideration in the policy response to rising inflation as the world economy recovers. We estimate that for all country groups (except for advanced countries) inflation above a threshold of about 10 percent quickly becomes harmful to growth, suggesting the need for a prompt policy response to inflation at or above the relevant threshold. For the advanced economies, the threshold is much lower. For oil exporting countries, the estimates are less robust, possibly reflecting heterogeneity among oil producers, but the effect of higher inflation for oil producers is found to be stronger
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction; II. The Backdrop; III. A Review of the Literature; IV. Inflation and Growth-Threshold Level; A. Estimating the LSTR Model; 1. Explanatory Variable f(π) as a Function of π; 2. Distribution of f(π) in the Data; 3. Weight on βhigh (threshold = 10, st.dev = 0.5); 1. OLS, LSTR, and TAR Results; 2. Effect of Inflation on Growth; 3. Robustness Checks; B. Statistical Inference through Bootstrapping; 4. Bootstrapping Advanced Economies and Emerging Markets; 5. Bootstrapping Oil Producers; 6. Lagged Inflation and Lagged Investment
Language
eng
Literary Form
non fiction
Note
Description based upon print version of record
Physical Description
1 online resource (34 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781451985214

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