From the PDF by Robert Pollin and Andong Zhu:
This paper presents new non-linear regression estimates of the relationship between inflation and economic growth for 80 countries over the period 1961 – 2000. We perform tests using the full sample of countries as well as sub-samples consisting of OECD countries, middle-income countries, and low-income countries. We also consider the full sample of countries within the four separate decades between 1961 – 2000. Considering our full data set we consistently find that higher inflation is associated with moderate gains in GDP growth up to a roughly 15 – 18 percent inflation threshold...
Hyperinflations aside, the relationship between inflation and growth has been at the very center of macroeconomic theory debates since the monetarist counterrevolution against Keynesianism beginning in the 1960s. The main progeny of that counterrevolution—the “natural rate of unemployment,” the vertical Phillips Curve, and New Classical Economics more generally—have been focused largely around demonstrating that there can be no positive benefits for economic growth or employment of operating an economy at anything above a minimal inflation rate in the range of 2 – 3 percent...
This position contrasts sharply with the Keynesian perspective and the early Phillips Curve models, which held that inflation and economic growth can be positively associated when inflationary pressures emerge as a byproduct of rising aggregate demand. In this Keynesian framework, it is not the case that inflation is itself a positive engine of growth, certainly not a primary growth-inducing force. The point is rather that, if rising aggregate demand is leading to increased growth, then some inflationary pressures are likely to emerge in this scenario as a relatively benign byproduct...
Considering first our full data set of 80 countries between 1961 - 2000, we have consistently found that higher inflation is associated with moderate gains in GDP growth up to a roughly 15 – 18 percent inflation threshold.
Hyperinflations aside, the relationship between inflation and growth has been at the very center of macroeconomic theory debates since the monetarist counterrevolution against Keynesianism beginning in the 1960s. The main progeny of that counterrevolution—the “natural rate of unemployment,” the vertical Phillips Curve, and New Classical Economics more generally—have been focused largely around demonstrating that there can be no positive benefits for economic growth or employment of operating an economy at anything above a minimal inflation rate in the range of 2 – 3 percent...
This position contrasts sharply with the Keynesian perspective and the early Phillips Curve models, which held that inflation and economic growth can be positively associated when inflationary pressures emerge as a byproduct of rising aggregate demand. In this Keynesian framework, it is not the case that inflation is itself a positive engine of growth, certainly not a primary growth-inducing force. The point is rather that, if rising aggregate demand is leading to increased growth, then some inflationary pressures are likely to emerge in this scenario as a relatively benign byproduct...
Considering first our full data set of 80 countries between 1961 - 2000, we have consistently found that higher inflation is associated with moderate gains in GDP growth up to a roughly 15 – 18 percent inflation threshold.
via Reddit.
1 comment:
This is exactly how I think of it, based on vague impressions and shallow thought.
inflation is a byproduct of growth.
Which logically leads to growth targeting.
I think I'm going to be sick.
JzB
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