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Economic Growth and Inflation in E urope: A Tale of Two Thresholds
Author(s) -
Crespo Cuaresma Jesús,
Silgoner Maria
Publication year - 2014
Publication title -
jcms: journal of common market studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.54
H-Index - 90
eISSN - 1468-5965
pISSN - 0021-9886
DOI - 10.1111/jcms.12117
Subject(s) - economics , inflation (cosmology) , nexus (standard) , sample (material) , econometrics , unification , monetary economics , macroeconomics , chemistry , physics , chromatography , theoretical physics , computer science , programming language , embedded system
This article reassesses the impact of inflation on long‐term growth for a panel of 14 E uropean U nion countries in the years prior to monetary unification. While previous research mostly focuses on a linear nexus or allows for a piecewise linear relationship with a single threshold, this study takes account of a more complex relationship. The empirical estimates for the full EU sample confirm the hypothesis that the relationship between inflation and growth is positive for very low inflation rates (that is, below an estimate of 1.6 per cent), insignificant thereafter and negative for high, two‐digit inflation levels. The estimate of the inflation level that divides the insignificant from the negative effect is found to be higher in the group of traditional cohesion countries than for the rest of the sample.

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