Re-examining the threshold effects in the inflation–growth nexus with cross-sectionally dependent non-linear panel: Evidence from six industrialized economies

By Tolga Omay, E. O. Kan. 2010

137 citations recorded by the source corpus.

This paper analyzes the empirical relationship between inflation and output growth using a novel panel data estimation technique, Panel Smooth Transition Regression (PSTR) model, which takes account of the non-linearities in the data. By using a panel data set for 6 industrialized countries that enable us to control for unobserved heterogeneity at both country and time levels, we find that there exists a statistically significant negative relationship between inflation and growth for the inflation rates above the critical threshold level of 2.52%, which is endogenously determined. Furthermore, we also control cross-section dependency by using the CD test modified to non-linear context and remedy cross-section dependency with Seemingly Unrelated Regression Equations through Generalized Least Squares (SURE-GLS) and newly proposed Common Correlated Effects (CCE) estimation techniques. We find that these methods change the critical threshold value slightly. The estimated threshold values from these estimation methods are 3.18% and 2.42%, respectively.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/f54d376ce8ef3729d8be512a913cb4c33483340f

Citations in the corpus

• Inflation and growth: new evidence from a dynamic panel threshold analysis (2009, unknown): “Note that alternative approaches to estimate a non-linear relationship between inflation and growth face the same problem: they either exclude initial income (Omay and Kan, 2010) or do not control for its endogeneity (Burdekin, Arthur T.”