Inflation and growth: New evidence from a dynamic panel threshold analysis

Stephanie Kremer, Alexander Bick, Dieter Nautz

Research output: Contribution to journalArticle

121 Scopus citations

Abstract

We introduce a dynamic panel threshold model to estimate inflation thresholds for long-term economic growth. Advancing on Hansen (J Econom 93:345-368, 1999) and Caner and Hansen (Econom Theory 20:813-843, 2004), our model allows the estimation of threshold effects with panel data even in case of endogenous regressors. The empirical analysis is based on a large panel-dataset including 124 countries. For industrialized countries, our results confirm the inflation targets of about 2% set by many central banks. For non-industrialized countries, we estimate that inflation rates exceeding 17% are associated with lower economic growth. Below this threshold, however, the correlation remains insignificant.

Original languageEnglish (US)
Pages (from-to)861-878
Number of pages18
JournalEmpirical Economics
Volume44
Issue number2
DOIs
StatePublished - Jan 1 2013

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Keywords

  • Dynamicpanel threshold model
  • Inflation and growth
  • Inflation thresholds

ASJC Scopus subject areas

  • Statistics and Probability
  • Mathematics (miscellaneous)
  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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