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

Abstract

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.

Institutional Quality and Economic Growth in Jordan: New Evidence Using an Autoregressive Distributed Lag (Ardl) Model

“…Fischer (1993) discussed that increasing the price level creates an uncertainty in the economy, this may reduce productivity and investments then harms economic growth. This result in line with many empirical studies such as (Baharumshah et al, 2016;Odhiambo, 2012).…”

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“…• A 1 percent rise in economic growth increases R&D expenditures generated by the government sector by 0.1476 percent, while a growth of 1 percent in inflation reduces government R&D expenditures by 0.0273 percent. (Hung, 2003;Pradhan, Arvin, & Bahmani, 2015;Baharumshah, Slesman, & Wohar, 2016). The assumption that inflation has a similar harmful impact on R&D expenditures and innovation as on economic growth is confirmed by this part of the research.…”

Estimating Optimal Inflation Rate in Saudi Arabia: Using Dynamic Threshold Regression Model

“…For instance, according to Vinayagathasan (2013), optimal inflation is 5 percent in Asian countries, in Switzerland is found at 12 percent (Mosikari et al, 2018). Baharumshah, Slesman, and Wohar (2016) pointed out that the optimal inflation level is at 5 percent in emerging markets by using a panel data technique. In addition, Samir (2012) found that optimal inflation is approximately 10 percent in MENA (the Middle East and North Africa) region.…”