Deniz Baglan and Emre Yoldas
Abstract: Using data on developing economies, we estimate a flexible semiparametric panel data model that incorporates potentially nonlinear effects of inflation on economic growth. We find that inflation is associated with significantly lower growth only after it reaches about 12 percent, which is notably lower than the comparable estimate obtained from a threshold model. Our results also suggest that models with restrictive functional form assumptions tend to underestimate marginal effects of inflation on economic growth. We also document significant variation in the effect of inflation on growth across countries and over time.
Keywords: Inflation, economic growth, semiparametric panel data model, series estimation, bootstrapFull paper (459 KB PDF)