(C) Common Dreams
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Inflation crises and long-run growth [1]

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Date: 1998-02-01  

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.

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[1] Url: https://www.sciencedirect.com/science/article/abs/pii/S0304393297000639

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