Inflation-growth nexus : evidence from a pooled CCE multiple-regime panel smooth transition model

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Authors

Omay, Tolga
Van Eyden, Renee
Gupta, Rangan

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Publisher

Springer

Abstract

This paper analyses the empirical relationship between inflation and growth using a panel data estimation technique, multiple-regime panel smooth transition regression, which takes into account the nonlinearities in the data. By using a panel data set for 10 countries in the Southern African Development Community permitting us to control for unobserved heterogeneity at both country and time levels, we find that a statistically significant negative relationship exists between inflation and growth for inflation rates above the critical threshold levels of 12 and 32% which are endogenously determined. Furthermore, we remedy the cross-section dependence with the common correlated effects estimator.

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Keywords

Inflation, Growth, Threshold effects, Cross-section dependence, Threshold autoregressive model, Least-squares estimator, Unit root, Heterogeneous panel, Regression approach, Economic growth, Tax evasion, Inference, Multiple-regime panel smooth transition regression (MR-PSTR), Southern African Development Community (SADC), Common correlated effects (CCE)

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Citation

Omay, T., van Eyden, R. & Gupta, R. Inflation–growth nexus: evidence from a pooled CCE multiple-regime panel smooth transition model. Empirical Economics (2018) 54: 913-944, https://doi.org/10.1007/s00181-017-1237-2.