Does Inflation Harm Economic Growth? Evidence for the OECD
The purpose of this paper is to study the correlation among growth and inflation at the OECD level, within the framework of the so-called convergence equations, and to discuss whether this correlation withstands a number of improvements in the empirical models, which try to address the most common criticisms of this evidence. The main findings are the following: 1) the negative correlation among growth and inflation is not explained by the experience of high-inflation economies; 2) the estimated costs of inflation are still significant once country-specific effects are allowed for in the empirical model; and 3) the observed correlation cannot be dismissed on the grounds of reverse causation (from GDP to inflation).
- Inflation not only reduces the level of business investment, but also the efficiency with which productive factors are put to use....
The Costs and Effects of Price Stability. Feldstein, Martin, ed., Chicago: The University of Chicago Press, 1999, pp. 315-341.
Does Inflation Harm Economic Growth? Evidence from the OECD, Javier Andrés, Ignacio Hernando. in The Costs and Benefits of Price Stability, Feldstein. 1999