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Moderate Inflation and the Deflation–Depression Link
Author(s) -
BENHABIB JESS,
SPIEGEL MARK M.
Publication year - 2009
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2009.00232.x
Subject(s) - deflation , inflation (cosmology) , economics , great depression , keynesian economics , depression (economics) , sample (material) , monetary economics , econometrics , monetary policy , physics , history , thermodynamics , theoretical physics , archaeology
Recent research has concluded that the historical evidence only provides weak support for the contention that deflation episodes are harmful to economic growth. In this paper, we revisit this relationship by allowing for inflation and growth to have a nonlinear specification dependent on inflation levels. In particular, we allow for the possibility that high inflation is negatively correlated with growth, while a positive relationship exists over the range of negative to moderate inflation. Our results confirm a positive relationship between inflation and growth at moderate inflation levels, and support the contention that the relationship between inflation and growth is nonlinear over the entire sample range.