Output and Inflation in the Long Run

By Neil R. Ericsson, J. S. Irons, R. Tryon. 2000

114 citations recorded by the source corpus.

Cross-country regressions explaining output growth often obtain a negative effect from inflation. However, that result is not robust, due to the selection of countries in sample, temporal aggregation, and omission of consequential variables in levels. This paper demonstrates some implications of these mis-specifications, both analytically and empirically. In particular, for most G-7 countries, annual time series of inflation and the log-level of output are cointegrated, thus rejecting the existence of a long-run relation between output growth and inflation. Typically, output and inflation are positively related in these cointegrating relationships: a price markup model helps interpret this surprising feature.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/a331b0f6a540e29d9dd19f52b650ae516c1cc592

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In Economics and Econometrics

Citations in the corpus

Is the Relationship between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle Income Countries (2015, unknown): “Similar results were found by Rioja and Valev (2004), Rousseau and Wachtel (2002) and Favara (2003). More recently, Arcand et al.”
How Does Foreign Direct Investment Really Affect Developing Countries' Growth? (2012, unknown): “Ericsson et al. (2001), for example, show that the use of growth rates (or first differences) can lead to highly misleading conclusions regarding the long-run level relationship between the variables––even in cross-country analyses.”
International Evidence on the Long-Run Impact of Inflation (2003, unknown): “The negative relationship between inflation and growth often found in cross-country growth regressions appears to be due to improper aggregation of low-inflation and high-inflation countries; see, for example, Ericsson, Irons, and Tryon (2000).”
Inequality and growth: evidence from panel cointegration (2011, background): “[12], for example, show that averaging data over time can induce a spurious contemporaneous correlation between the time-averaged data, even if the original series are not contemporaneously correlated; both the sign and magnitude of the induced correlation can differ from those in the underlying dat”
In search of FDI-led growth in developing countries (2008, background): “Hence, as Ericsson et al. (2001) demonstrate, simply using first differences or growth rates can lead to serious misspecification problems ─ even in cross-cross country analyses.”
A Survey Of Recent Developments In The Literature Of Finance And Growth (2008, methodology): “In view of these limitations, a number of researchers have put forward strong arguments for time series country-specific indepth studies (see Demetriades and Hussein, 1996; Edwards, 1996; Neusser and Kugler, 1998; Ericsson et al., 2001; Kenny and Williams, 2001; Kirkpatrick, 2005; Ang 2007, 2008).”