Inflation, Financial Development and Growth

14 Pages Posted: 7 Dec 2000

See all articles by Peter L. Rousseau

Peter L. Rousseau

Vanderbilt University - Department of Economics

Paul Wachtel

New York University - Stern School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 2000

Abstract

It is generally thought that there is a negative long-term relationship between inflation and growth and a positive long-term relationship between financial development and growth. The existing empirical literature suggests that the finance-growth relationship is more robust than the inflation-growth relationship. In this paper we explore the triangle of relationships - finance-inflation-growth - with panel data from as many as 84 countries for 1960-95.

Our results with standard growth equations indicate that inflation inhibits economic growth both directly and indirectly through its effect on financial development. However, the direct effects of inflation largely disappear when inflation is moderate. We also find that the strong and robust effect of financial sector depth on economic growth is largely unaffected by the presences of the inflation rate. However, the effect of financial depth tends to be much weaker in high inflation environments.

JEL Classification: O5

Suggested Citation

Rousseau, Peter L. and Wachtel, Paul, Inflation, Financial Development and Growth (November 2000). Available at SSRN: https://ssrn.com/abstract=251589 or http://dx.doi.org/10.2139/ssrn.251589

Peter L. Rousseau

Vanderbilt University - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
United States
615-343-2466 (Phone)
615-343-8495 (Fax)

HOME PAGE: http://www.vanderbilt.edu/econ/faculty/rousseau.html

Paul Wachtel (Contact Author)

New York University - Stern School of Business ( email )

44 West 4th St.
New York, NY 10012
United States
212-998-4030 (Phone)
212-995-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~pwachtel

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
856
Abstract Views
3,538
Rank
52,173
PlumX Metrics