Economic Growth and Inflation in Europe: A Tale of Two Thresholds

18 Pages Posted: 4 Jun 2014

See all articles by Jesús Crespo Cuaresma

Jesús Crespo Cuaresma

University of Innsbruck - Department of Economic Theory, Economic Policy and Economic History

Maria Silgoner

Oesterreichische Nationalbank (OeNB)

Date Written: July 2014

Abstract

This article reassesses the impact of inflation on long‐term growth for a panel of 14 European Union countries in the years prior to monetary unification. While previous research mostly focuses on a linear nexus or allows for a piecewise linear relationship with a single threshold, this study takes account of a more complex relationship. The empirical estimates for the full EU sample confirm the hypothesis that the relationship between inflation and growth is positive for very low inflation rates (that is, below an estimate of 1.6 per cent), insignificant thereafter and negative for high, two‐digit inflation levels. The estimate of the inflation level that divides the insignificant from the negative effect is found to be higher in the group of traditional cohesion countries than for the rest of the sample.

Suggested Citation

Crespo Cuaresma, Jesús and Silgoner, Maria, Economic Growth and Inflation in Europe: A Tale of Two Thresholds (July 2014). JCMS: Journal of Common Market Studies, Vol. 52, Issue 4, pp. 843-860, 2014. Available at SSRN: https://ssrn.com/abstract=2445713 or http://dx.doi.org/10.1111/jcms.12117

Jesús Crespo Cuaresma (Contact Author)

University of Innsbruck - Department of Economic Theory, Economic Policy and Economic History ( email )

Universitaetsstrasse 15
Innsbruck, A - 6020
Austria

Maria Silgoner

Oesterreichische Nationalbank (OeNB)

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

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