Evidence from a Panel of Transition Countries: The Effect of Inflation on Growth

18 Pages Posted: 17 Aug 2010

See all articles by Max Gillman

Max Gillman

Central European University (CEU) - Department of Economics

Mark N. Harris

Curtin University

Abstract

The paper examines the effect of inflation on growth in transition countries. It presents panel data evidence for 13 transition countries over the 1990–2003 period; it uses a fixed effects panel approach to account for possible bias from correlations among the unobserved effects and the observed country heterogeneity. The results find a strong, robust, negative effect on growth of inflation or its standard deviation, and one that appears to decline in magnitude as the inflation rate increases, as seen for OECD countries. And the results include a role for a normalized money demand in affecting growth, as well as for a convergence variable, a trade variable and a government share variable. Robustness of the baseline single-equation model is examined by expanding this into a three-equation simultaneous system of output growth, inflation and money demand that allows for possible simultaneity bias in the baseline model.

Suggested Citation

Gillman, Max and Harris, Mark N., Evidence from a Panel of Transition Countries: The Effect of Inflation on Growth. Economics of Transition, Vol. 18, Issue 4, pp. 697-714, October 2010, Available at SSRN: https://ssrn.com/abstract=1660064 or http://dx.doi.org/10.1111/j.1468-0351.2009.00389.x

Max Gillman

Central European University (CEU) - Department of Economics ( email )

Nador u. 9.
Budapest H-1051
Hungary
+36 1 327 3227 (Phone)
+36 1 327 3232 (Fax)

Mark N. Harris

Curtin University ( email )

Kent Street
Bentley
Perth, WA WA 6102
Australia

HOME PAGE: http://business.curtin.edu.au/contact/staff_directory/?profile=Mark-Harris

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