Threshold Effects in the Relationship between Inflation and Growth

32 Pages Posted: 31 Jan 2006

See all articles by Mohsin S. Khan

Mohsin S. Khan

International Monetary Fund (IMF)

Abdelhak Senhadji

International Monetary Fund (IMF) - Asia and Pacific Department

Date Written: June 2000

Abstract

This paper reexamines the issue of the existence of threshold effects in the relationship between inflation and growth, using new econometric techniques that provide appropriate procedures for estimation and inference. The threshold level of inflation above which inflation significantly slows growth is estimated at 1-3 percent for industrial countries and 7-11 percent for developing countries. The negative and significant relationship between inflation and growth, for inflation rates above the threshold level, is quite robust with respect to the estimation method, perturbations in the location of the threshold level, the exclusion of high-inflation observations, data frequency, and alternative specifications.

Keywords: Inflation, Growth, Threshold Effects

JEL Classification: E31, O40

Suggested Citation

Khan, Mohsin S. and Senhadji, Abdelhak, Threshold Effects in the Relationship between Inflation and Growth (June 2000). IMF Working Paper No. 00/110, Available at SSRN: https://ssrn.com/abstract=879840

Mohsin S. Khan (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4518 (Phone)
202-623-6440 (Fax)

Abdelhak Senhadji

International Monetary Fund (IMF) - Asia and Pacific Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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