Jan 25, 2013 Report No：12-17
This paper investigates the existence of a threshold level for inflation and how any such level affects the growth of Asian economies. We used dynamic panel threshold growth regression, which allowed us to work with fixed effect and endogeneity issues. We observed a nonlinear relationship between inflation and economic growth for 32 Asian countries over the period 1980–2009. We detected an inflation threshold of approximately 5.43%, at a 1% level of significance. We found that inflation hurts growth when it exceeds 5.43% but has no effect below this level. Different estimation methods determined that the effect of inflation on growth is robust. Our findings may be useful to central banks as a guide for inflation targeting.
|Keywords||Dynamic panel threshold model; economic growth; inflation; inflation thresholds|