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Does Inflation Slow Long-Run Growth in India?
Author:
Mr. Kamiar Mohaddes null

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Mr. Mehdi Raissi
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Series:
IMF Working Papers
Volume/Issue:
Volume 2014: Issue 222
Language:
English
Publication Date:
15 Dec 2014
DOI:
https://doi.org/10.5089/9781498399982.001
ISBN:
9781498399982
ISSN:
1018-5941
Pages:
19
Keywords:
WP; India; inflation; growth; threshold effects; cross-sectional heterogeneity; dependence; data from the CEIC database; panel ARDL approach; inflation threshold effect; CS-DL estimation strategy; growth rate; CPI-RL data; inflation-growth trade-off; CS-DL result; ARDL specification; anti-inflation effort; CS-DL estimate; Consumer price indexes; Production growth; Threshold analysis
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper examines the long-run relationship between consumer price index industrial workers (CPI-IW) inflation and GDP growth in India. We collect data on a sample of 14 Indian states over the period 1989–2013, and use the cross-sectionally augmented distributed lag (CSDL) approach of Chudik et al. (2013) as well as the standard panel ARDL method for estimation—to account for cross-state heterogeneity and dependence, dynamics and feedback effects. Our findings suggest that, on average, there is a negative long-run relationship between inflation and economic growth in India. We also find statistically-significant inflation-growth threshold effects in the case of states with persistently-elevated inflation rates of above 5.5 percent. This suggest the need for the Reserve Bank of India to balance the short-term growthinflation trade-off, in light of the long-term negative effects on growth of persistently-high inflation.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund