On the Non-linear Relationship between Inflation and Economic Growth

Mardi | 2011-12-06

Comlanvi Jude EGGOH – Muhammad KHAN

Using a large panel data of both developed and developing economies and based on the PSTR and dynamic GMM techniques, this paper highlights two aspects of the inflation-growth relationship. First, it analyzes non-linearity and offersseveral thresholds for the global sample as well as for different income specific sub-samples. Second, it identifies some indirect channels effectualfor inflation-growth non-linearity. Our empirical results substantiate both views and validate the fact that inflation-growth non-linearity is sensitive to financial development, investment ratio, trade openness and government expenditures. Finally, for different country groups, the indirect channels show some marked differences in this non-linear relationship.