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

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.

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Correspondence to Alexander Bick.

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Kremer, S., Bick, A. & Nautz, D. Inflation and growth: new evidence from a dynamic panel threshold analysis. Empir Econ 44, 861–878 (2013). https://doi.org/10.1007/s00181-012-0553-9

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Keywords

  • Inflation thresholds
  • Inflation and growth
  • Dynamicpanel threshold model

JEL Classification

  • C72
  • C23
  • O40