Economic Growth and Inflation in <scp>E</scp>urope: A Tale of Two Thresholds

This paper investigates the relationship between inflation, inflation uncertainty, and economic growth in a panel of 94 emerging and developing countries. Based on the system generalized method of moments (SGMM) that controls for instrument proliferation, we discover the following results. First, when both the proliferation of instruments problem and the biased standard error in SGMM are accounted for, the results reveal that only in non-inflation crisis countries does inflation harm growth, while inflation uncertainty promotes growth. Empirical results, based on a three-regime model, confirm the negative growth effect of high inflation rates and the growth enhancing effect of low inflation. Second, the negative-level effect of not keeping inflation in check outweighs the positive effect from uncertainty in non-inflation crisis countries in all three regimes. Third, the existence of a positive effect of uncertainty about the inflation rate on growth through a precautionary motive is confirmed when inflation reaches moderate ranges (5.6-15.9%). These findings are robust, although only for noninflation crisis countries, to a battery of diagnostic tests, including the issue of weak and the proliferation of instruments and biased standard error.

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Inflation, inflation uncertainty, and economic growth in emerging and developing countries: Panel data evidence

Baharumshah

Slesman

Wohar

2016

Economic Systems

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Threshold Effects of Inflation on Economic Growth: Is Africa Different?

Ndoricimpa

2017

International Economic Journal

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The Ecb's Price Stability Framework: Past Experience, and Current and Future Challenges

Cecion¹,

Coenen²,

Gerke³

et al. 2021

SSRN Journal

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The ECB's price stability mandate has been defined by the Treaty. But the Treaty has not spelled out what price stability precisely means. To make the mandate operational, the Governing Council has provided a quantitative definition in 1998 and a clarification in 2003. The landscape has changed notably compared to the time the strategy review was originally designed. At the time, the main concern of the Governing Council was to anchor inflation at low levels in face of the inflationary history of the previous decades. Over the last decade economic conditions have changed dramatically: the persistent low-inflation environment has created the concrete risk of de-anchoring of longer-term inflation expectations. Addressing low inflation is different from addressing high inflation. The ability of the ECB (and central banks globally) to provide the necessary accommodation to maintain price stability has been tested by the lower bound on nominal interest rates in the context of the secular decline in the equilibrium real interest rate. Against this backdrop, this report analyses: the ECB's performance as measured against its formulation of price stability; whether it is possible to identify a preferred level of steady-state inflation on the basis of optimality considerations; advantages and disadvantages of formulating the objective in terms of a focal point or a range, or having both; whether the medium-term orientation of the ECB's policy can serve as a mechanism to cater for other considerations; how to strengthen, in the presence of the lower bound, the ECB's leverage on private-sector expectations for inflation and the ECB's future policy actions so that expectations can act as 'automatic stabilisers' and work alongside the central bank.

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Economic Growth and Inflation in Europe: A Tale of Two Thresholds

Cited by 4 publications

References 44 publications

Inflation, inflation uncertainty, and economic growth in emerging and developing countries: Panel data evidence

Inflation, inflation uncertainty, and economic growth in emerging and developing countries: Panel data evidence

Threshold Effects of Inflation on Economic Growth: Is Africa Different?

The Ecb's Price Stability Framework: Past Experience, and Current and Future Challenges

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