Economic Growth and Inflation in Europe: A Tale of Two Thresholds1. (19th December 2013)

• Record Type: Journal Article
• Authors: Crespo Cuaresma, Jesús; Silgoner, Maria
• Is Part Of: Journal of common market studies. Volume 52:Number 4(2014)
• Page Start: 843
• Page End: 860
• Publication Date: 2013-12-19
• Subjects: European Economic Community countries -- Periodicals; European Union countries -- Periodicals; Periodicals; 382.9142
• DOI: 10.1111/jcms.12117
• Languages: English
• ISSNs: 0021-9886

Abstract

<abstract abstract-type="main"> <title>Abstract</title> <p>This article reassesses the impact of inflation on long‐term growth for a panel of 14 European Union 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.</p> </abstract>