Reexamining the relationship between inflation and growth: Do institutions matter in developing countries? |
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| Institution: | 1. Banco de Mexico, Mexico;2. Universidad de Buenos Aires, Argentina;1. University of Paris 1 Panthéon-Sorbonne, CES, France;2. ThEMA and Labex MME-DII, University of Cergy-Pontoise, 33 Bd du Port, 95011 Cergy-Pontoise, France;1. College of Economics and Administrative Sciences, Al-Imam Muhammad Bin Saud Islamic University, Riyadh, Saudi Arabia;2. College of Business Administration, King Saud University, Riyadh, Saudi Arabia |
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| Abstract: | Using a large panel of countries during the period 1950–2009, we estimate the inflation thresholds above which its association with economic growth is expected to be negative, taking into account differences in institutions across countries. First, in line with previous literature, we find that the estimated threshold is substantially higher for developing countries compared to that of developed countries. However, we further show that the inflation threshold in developing economies falls when we consider reduced groups that exceed certain levels of institutional quality. We also find that the cost of inflation increases with the quality of institutions. |
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