Scandinavian Working Papers in Economics
Research Papers in Economics,
Stockholm University, Department of Economics
No 1997:8: MACROECONOMIC INSTABILITY AND GROWTH: Panel Data Analysis of Causal and Cyclical Patterns
Mahmood Arai () and Mats Kinnwall ()
Additional contact information
Mahmood Arai: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Mats Kinnwall: Handelsbanken Markets, Stockholm, Postal: Handelsbanken Markets, 106 70 Stockholm, Sweden
Abstract: Empirical foundations for the view that high central government deficits and inflation impair growth are examined using annual data for 115 countries over the period 1960-1995. Taking into account country heterogeneity and time-specific symmetric shocks, we estimate intra-country effects of past inflation and budget deficits on growth. WE find no evidence suggesting growth costs of macroeconomic instability. Rather our results indicate reversed causality: the rate of growth determines inflation and deficits. On the other hand, there is a negative correlation between contemporaneous intra-country inflation and growth for two subperiods: the 1970s/early 1980s, influenced by adverse supply shocks, and the early 1990s characterised by adverse demand shocks. We argue that these results are compatible with a standard, stochastic macro theoretical framework.
Keywords: Growth; Inflation; Budget Deficits
14 pages, April 17, 1998
Full text files
wp97_08.pdf
Questions (including download problems) about the papers in this series should be directed to Anne Jensen ()
Report other problems with accessing this service to Sune Karlsson ().
This page generated on 2024-02-05 17:13:48.