Title: Warning: Inflation May Be Harmful to Your Growth
Abstract: While few doubt that very high inflation is bad for growth, there is less agreement about the effects of moderate inflation.Using panel regressions and allowing for a nonlinear specification, this paper finds a statistically and economically significant negative relationship between inflation and growth, which holds robustly at all but the lowest inflation rates.A "decision-tree" technique identifies inflation as one of the most important determinants of growth.Finally, short-run growth costs of disinflation are only relevant for the most severe disinflations, or when the initial inflation rate is well within the single-digit range.[JEL E31, 040] R APID OUTPUT GROWTH and low inflation are the most common objectives of macroeconomic policy.It is rather surprising, therefore, that a consensus about the relationship between these two variables is yet to emerge.While early studies by Phillips (1958) suggested an exploitable trade-off between output and price stability, the stagflationary experience of the industrialized countries in the 1970s belied this finding and showed that, beyond the short run, any such trade-off is illusory.More recent cross-country studies, particularly those that include middle-and low-income countries in their samples, suggest a negative relationship between growth and inflation. 1Even