Inflation and economic growth in Latin America : some panel time-series evidence

Abstract

In this paper we investigate the role of poor macroeconomic performance, in terms of high rates of inflation, in determining economic growth in four Latin American countries between 1970 and 2007. The empirical results, based on the relatively novel panel time-series analysis, confirm the anecdotal evidence which suggests that inflation has had a detrimental effect to growth in the region. All in all, we highlight the costs that inflation has had on economic activity, and also the importance of particular economic institutions which were implemented in the 1990s central-bank independence and fiscal responsibilities laws in actually keeping inflation under control in the region, as a first step in the direction of sustained growth and prosperity.