Macroeconomic policy, inflation and growth in emerging market countries

Carolina Miccolis-Anwar, Fordham University

Abstract

This study empirically analyzes the possibility that the impact of inflation on growth is due to some transmission mechanism(s). Three models each suggesting different transmission mechanisms are analyzed in this paper: (1) A q-theory model suggesting that investment is the transmission mechanism by which inflation affects growth; (2) A real exchange rate-based model where inflation hinders growth via a Dutch-Disease style channel, shifting economic resources to the less productive sector; and (3) a financial repression model is formulated proposing that a “liquidity crunch”—lack of long term credit availability—may be a potential transmission mechanism of inflation on growth. The models are estimated using cross country panel General Method of Moments (GMM) regressions for the period 1961–2006. Results show that for the sample of EME inflation is detrimental to growth and that both the real exchange rate and credit seem to function as a transmission mechanism through which inflation affects growth. Additionally, no evidence is found to support investment as a transmission mechanism of inflation on growth. ^

Subject Area

Economics, General

Recommended Citation

Carolina Miccolis-Anwar, "Macroeconomic policy, inflation and growth in emerging market countries" (January 1, 2009). ETD Collection for Fordham University. Paper AAI3377050.
http://fordham.bepress.com/dissertations/AAI3377050

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