Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2002:5: Cyclical and Causal Patterns of Inflation and GDP Growth

Mahmood Arai (), Mats Kinnwall () and Peter Skogman Thoursie ()
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, Postal: Handelsbanken Markets, Stockholm
Peter Skogman Thoursie: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: Empirical foundations for the view that high inflation impairs GDP growth are examined using annual data for 115 countries over the period 1960-1995. Taking into account country heterogeneity and time-specific symmetric shocks, as well as endogeneity of inflation and dynamics of GDP growth we estimate dynamic panel-data models of the effects of inflation on growth. We find no evidence supporting the view that inflation is in general harmful to GDP growth. On the other hand, there is a negative correlation between contemporaneous intra-country inflation and growth for periods characterised by positive oil-price shocks.

Keywords: GDP GROWTH; Inflation

JEL-codes: O11; O57

25 pages, February 8, 2002

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