Inflation and growth: in search of a stable relationship

A study reexamines the long-standing conventional wisdom that growth and inflation are positively related in the short run and negatively related in the long run. Conventional wisdom is found to be consistent - consistently wrong. No evidence is found of any relationship between inflation and growth...

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Bibliographic Details
Published in:Review - Federal Reserve Bank of St. Louis 1996-05, Vol.78 (3), p.139-151
Main Authors: Bruno, Michael, Easterly, William
Format: Article
Language:English
Subjects:
Analysis
Anti inflation
Case studies
Cost control
Developing countries
Economic development
Economic growth
Economic recovery
Economics
Growth models
Growth rate
Inflation
Inflation (Finance)
Inflation rates
LDCs
Phillips curve
Price stability
Statistical analysis
Studies
Variables
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Summary:A study reexamines the long-standing conventional wisdom that growth and inflation are positively related in the short run and negatively related in the long run. Conventional wisdom is found to be consistent - consistently wrong. No evidence is found of any relationship between inflation and growth at annual inflation rates less than 40%. A short- to medium-run relationship is found between high inflations and growth, but it is a negative relationship. Results also indicate that there is no lasting damage to growth from discrete high inflation crises, as countries tend to recover back toward their precrisis growth rate.
ISSN:0014-9187
2163-4505