Journal Article

Growth and inflation: a cross-country study

Abstract: This paper examines the effect of inflation on real growth in a Solow growth model using data from a cross section of countries over a 30-year period. The advantage of using a theoretical model is that it reduces the risk that the results will reflect data-mining. The results suggest that the 5 percentage point reduction in inflation from the 1970s to the 1980s would increase the growth rate of real GDP per head by between 0.1 and 0.5 percentage point. This effect would be worth between 15 percent and 140 percent of one year's income. Even the lower of these projections would be larger than most estimates of the costs of bringing inflation down.

Keywords: Economic development; Inflation (Finance); Gross domestic product;

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Economic Review

Publication Date: 1998

Pages: 15-28

Order Number: 1