Threshold Effects in the Relationship between Inflation and Growth

By Mohsin S. Khan, Abdelhak S. Ssnhadji. International Monetary Fund Staff Papers, 2000

1,097 citations recorded by the source corpus.

This paper re-examines 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 11-12 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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/f9a76372a17725c70b0481b425f62e9ab6c9669d

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Citations in the corpus

The Benefits of Economic Freedom: A Survey (2003, background): “Monetary policy and growth seem to be only weakly connected, but the more detailed studies indicate that the effect of inflation, particularly above certain threshold levels, on growth is negative in the medium and long term (see Khan and Senhadji, 2000).”
Economic Determinants of Non-Performing Loans: Perception of Pakistani Bankers (2012, result): “Findings also support the previous study conducted by Keeton and Morris (1987). Pakistan is a country where energy crisis have ruined the industry, most of the units have closed.”
Inflation and growth: new evidence from a dynamic panel threshold analysis (2009, positive): “Following Khan and Senhadji (2001) and Drukker et al. (2005), we consider the percentage of GDP dedicated to investment (igdp), the population growth rate (dpop), the initial income level (ini tial)—measured as GDP per capita from the previous period—and openness (open)—measured as the logged share…”
THRESHOLD EFFECTS OF INFLATION ON ECONOMIC GROWTH IN DEVELOPING COUNTRIES (2010, methodology): “The results from the specification with a regime intercept are in line with those by Khan and Senhadji (2001), despite that, similarly to Fisher (1993), low inflation rates (less than 12”
Threshold effects in the relationship between inflation and growth: a new panel-data approach (2005, methodology): “10In a related paper, (Khan and Senhadji 2001) include the threshold point as part of their semi-log transform so that the model for growth is continuous at the threshold point.”
Fiscal policy, expenditure composition, and growth in low-income countries (2005, background): “High levels of inflation have been found to reduce growth and can lead to macroeconomic and financial instability (Fischer, 1983; Sarel, 1996; Khan and Senhadji, 2001 ).”
On the real effects of inflation and inflation uncertainty in Mexico (2006, background): “Papers by Fischer (1993), Sarel (1996), Bruno and Easterly (1998), Burdekin et al. (2000), and Khan and Senhadji (2001) all find that the effect of inflation on output growth varies with the level of inflation.”