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Empirical Economics

, Volume 44, Issue 2, pp 861–878 | Cite as

Inflation and growth: new evidence from a dynamic panel threshold analysis

  • Stephanie Kremer
  • Alexander Bick
  • Dieter Nautz
Article

Abstract

We introduce a dynamic panel threshold model to estimate inflation thresholds for long-term economic growth. Advancing on Hansen (J Econom 93:345–368, 1999) and Caner and Hansen (Econom Theory 20:813–843, 2004), our model allows the estimation of threshold effects with panel data even in case of endogenous regressors. The empirical analysis is based on a large panel-dataset including 124 countries. For industrialized countries, our results confirm the inflation targets of about 2% set by many central banks. For non-industrialized countries, we estimate that inflation rates exceeding 17% are associated with lower economic growth. Below this threshold, however, the correlation remains insignificant.

Keywords

Inflation thresholds Inflation and growth Dynamicpanel threshold model 

JEL Classification

C72 C23 O40 

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Copyright information

© Springer-Verlag 2012

Authors and Affiliations

  • Stephanie Kremer
    • 1
  • Alexander Bick
    • 2
  • Dieter Nautz
    • 1
  1. 1.Department of EconomicsFree University BerlinBerlinGermany
  2. 2.Department of Economics, House of FinanceGoethe University FrankfurtFrankfurtGermany

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