Abstract: This paper re-examines the relationship between
inflation, inflation volatility and growth using cross-country panel
data for the past 30 years. With regard to the level of inflation, we
find that in contrast to current findings which are based on
cross-sectional time-average regression comparisons, exploiting the
time dimension of the data reveals a strong negative correlation
between inflation and income growth for all but very low inflation
countries. To examine the role of inflation uncertainty on growth, we
use intra-year inflation data to construct an annual measure of
inflation volatility. Using this measure, we find that inflation
volatility is also robustly negatively correlated with growth even
after the effect of the level of inflation is controlled for.
Keywords: Growth, inflation, volatility, panel data
Full paper (179 KB PDF)
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