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:
Fischer w4565 The Role of Macroeconomic Factors in Growth
Fischer w1235 Inflation and Growth
Hobijn and Jovanovic w7684 The Information Technology Revolution and the Stock Market: Evidence
Attanasio, Guiso, and Jappelli w6593 The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Household Data
Andrés and Hernando w6062 Does Inflation Harm Economic Growth? Evidence for the OECD
 
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