Inflation and economic growth: evidence from a growth equation

Abstract

There is little existing empirical evidence on the relationship between inflation and growth, and much of what evidence there is fails to control appropriately for growth in real inputs. The present work uses a small sample of OECD countries for which capital stock and labour force data are available to investigate, in a pooled time series and cross-section fashion, the relationship between inflation and growth. Strong evidence is found contrary to the maintained hypothesis that there should be no association between inflation and real growth. The weight of evidence is that, having appropriately controlled for capital and labour inputs, inflation and its first difference are significantly negatively related to economic growth.