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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Inflation, Volatility, and Growth
Ruth Judson and Athanasios Orphanides

Abstract: This paper re-examines the relationship between inflation, inflation volatility and growth using cross-country panel data for the past 30 years. With regard to the level of inflation, we find that in contrast to current findings which are based on cross-sectional time-average regression comparisons, exploiting the time dimension of the data reveals a strong negative correlation between inflation and income growth for all but very low inflation countries. To examine the role of inflation uncertainty on growth, we use intra-year inflation data to construct an annual measure of inflation volatility. Using this measure, we find that inflation volatility is also robustly negatively correlated with growth even after the effect of the level of inflation is controlled for.

Keywords: Growth, inflation, volatility, panel data

Full paper (179 KB PDF) | Full paper (171 KB Postscript)

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Last update: July 16, 1997