Inflation-growth relationship in selected Asian developing countries: evidence from panel data

We question the empirical foundation of keeping inflation at 5% or below in developing economies. Using System Generalized Method of Moments we investigate the issue in the context of 14 Asian developing countries for the period 1961-2010. We find no robust empirical justification for targeting infl...

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Bibliographic Details
Published in:Journal of the Asia Pacific economy 2014-01, Vol.19 (4), p.604-628
Main Authors: Muzaffar, Ahmed Taneem, Junankar, P.N. (Raja)
Format: Article
Language:English
Subjects:
Asia
Asians
Developing countries
developing countries in Asia
Economic development
Generalized method of moments
growth
Inflation
Inflation targeting
LDCs
Monetary economics
Panel data
panel estimation
Studies
Threshold level of inflation
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Summary:We question the empirical foundation of keeping inflation at 5% or below in developing economies. Using System Generalized Method of Moments we investigate the issue in the context of 14 Asian developing countries for the period 1961-2010. We find no robust empirical justification for targeting inflation at such a low level. The inflation threshold for these countries is found around 13% and it may range between 7% and 14% depending on the level of development. The findings suggest that developing countries can gain from moderate levels of inflation and should not be alarmed when inflation crosses the 5% benchmark.
ISSN:1354-7860
1469-9648
DOI:10.1080/13547860.2014.920594