NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Inflation Crises and Long-Run Growth

Michael Bruno, William Easterly

NBER Working Paper No. 5209
Issued in August 1995
NBER Program(s):   IFM

Recent literature suggests that long-run averages of growth and inflation are only weakly correlated and such correlation is not robust to exclusion of extreme inflation observations; inclusion of time series panel data has improved matters, but an aggregate parametric approach remains inconclusive. We propose a nonparametric definition of high inflation crises as periods when inflation is above 40 percent annually. Excluding countries with high inflation crises, we find no evidence of any consistent relationship between growth and inflation at any frequency. However, we find that growth falls sharply during discrete high inflation crises, then recovers surprisingly strongly after inflation falls. The fall in growth during crisis and recovery of growth after crisis tend to average out to close to zero (even slightly above zero), hence the lack of a robust cross-section correlation. Our findings could be consistent either with trend stationarity of output, in which inflation crises are purely cyclical phenomena, or with models in which crises have a favorable long-run purgative effect. Our findings do not support the view that reduction of high inflation carries heavy short-to-medium run output costs.

download in pdf format
   (1442 K)

email paper

This paper is available as PDF (1442 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5209

Published: Journal of Monetary Economics, Vol. 41, no. 1 (February 1998): 3-26. citation courtesy of

Users who downloaded this paper also downloaded these:
Blanchard and Weil w3992 Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games Under Uncertainty
Jones and Manuelli w4523 Growth and the Effects of Inflation
Leahy and Whited w4986 The Effect of Uncertainty on Investment: Some Stylized Facts
Engel w8725 The Responsiveness of Consumer Prices to Exchange Rates And the Implications for Exchange-Rate Policy: A Survey Of a Few Recent New Open-Economy...
Fischer, Sahay, and Vegh w8930 Modern Hyper- and High Inflations
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us