Inflation crises and long-run growth

Michael Bruno, William Easterly

    Research output: Contribution to journalArticle

    Abstract

    Recent articles in the new growth literature find that growth and inflation are negatively related, a finding that is usually thought to reflect a long-run relationship. But the inflation-growth correlation is only present with high frequency data and with extreme inflation observations; there is no cross-sectional correlation between long-run averages of growth and inflation. We propose that examination of discrete high inflation crises (periods when inflation is above some threshold, which we propose to be 40% annual) helps unravel these empirical paradoxes. We establish a robust finding that growth falls sharply during discrete high inflation crises, then recovers rapidly and strongly after inflation falls.

    Original languageEnglish (US)
    Pages (from-to)3-26
    Number of pages24
    JournalJournal of Monetary Economics
    Volume41
    Issue number1
    DOIs
    StatePublished - Feb 1998

    Keywords

    • Inflation

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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