Inflation and economic growth: the search for a compromise for the Central Bank's monetary policy
-
Author(s)Volodymyr MishchenkoLink to ORCID Index: https://orcid.org/0000-0002-8565-2686
,
Svitlana NaumenkovaLink to ORCID Index: https://orcid.org/0000-0001-8582-6044
,
Svitlana MishchenkoLink to ORCID Index: https://orcid.org/0000-0002-1840-8579
,
Viktor IvanovLink to ORCID Index: https://orcid.org/0000-0003-4121-0605
-
DOIhttp://dx.doi.org/10.21511/bbs.13(2).2018.13
-
Article InfoVolume 13 2018, Issue #2, pp. 153-163
- Cited by
- 2424 Views
-
703 Downloads
This work is licensed under a
Creative Commons Attribution-NonCommercial 4.0 International License
The article analyzes the influence of inflation on economic growth and substantiates the main directions of increasing the effectiveness of the central bank's anti-inflation policy.
In order to determine the limit of inflation, the excess of which has a negative impact on the economic growth, the relationship is analyzed between the inflation rate and the real GDP growth rate on the basis of IMF statistics using the example of 158 countries. It was determined that in 2010–2017, in the global economy, the 6.0% inflation was the marginal value of the inflation rate, beyond which the economic growth rate declined or slowed down.
Given the inverse relationship between the inflation rate and the real GDP growth rates as well as empirical calculations for the period 1996–2017, the threshold for inflation rate for Ukraine at the level of 4.51% was determined based on empirical calculations for the 1996–2017 period. The results indicate that the National Bank of Ukraine set the inflation target above the level of the calculated threshold inflation.
It has also been established that the link between the rates of nominal GDP growth, as opposed to real GDP, and the inflation rate, is more direct and more tight. It is substantiated that to analyze such dependence it is better to use GDP deflator instead of CPI. The results indicate that deflation constrains economic growth much less than inflation.
In order to increase the effectiveness of the central bank’s pro-cyclical monetary policy aimed at supporting economic growth, the relationship between the rates of real GDP growth and the indicator characterizing the gap between the growth rates of M3 and inflation, which actually reflects the real money supply dynamics, is determined. The results obtained allowed to conclude that in 2009 and 2014-2017, the artificial “squeezing” of the money supply took place in Ukraine, resulting in a decrease in the level of the economy monetization by 22.0% in 2017 compared to 2013.
It has been proved that in order to minimize the negative impact of inflationary processes on economic growth, the policy of the National Bank of Ukraine should be aimed at eliminating the artificial squeezing of the money supply through a reasonable increase in the economy monetization and the implementation of an effective monetary policy.
- Keywords
-
JEL Classification (Paper profile tab)E31, E52, E58
-
References29
-
Tables2
-
Figures3
-
- Figure 1. Graphic presentation of real GDP growth rate dependence on inflation in 158 countries of the world in 2010–2017
- Figure 2. The empirical dependence of the real GDP growth rate on the inflation rate in Ukraine according to the regression equation (1)
- Figure 3. Dynamics of the inflation rate, real GDP growth rate and the spread between the M3 growth rates and inflation rate in Ukraine in 1996–2017
-
- Table 1. Grouping the countries of the world based on the GDP growth rates dependence on the inflation rate in 2010–2017
- Table 2. Dynamics of the main macroeconomic and monetary indicators in Ukraine in 1996–2017
-
- Barro, Robert J. (2013). Inflation and Economic Growth. Annals of Economics and Finance, 14(1), 85-109.
- Blinov, S. (2017). Инфляция и экономический рост [Infliatsiya i ekonomicheskiy rost] (MPRA Paper No. 78087).
- Bruno, M., & Easterly, W. (1998). Inflation Crisis and Long-run Growth. Journal of Monetary Economics, 41(1), 3-26.
- Eggoh, J. C., & Muhammad, K. (2014). On the nonlinear relationship between inflation and economic growth. Research in Economics, Elsevier, 68(2), 133-143.
- Espinoza, R., Leon, H., & Prasad, A. (2010). Estimating the Inflation-Growth Nexus – A Smooth Transition Model (IMF Working Paper No. 10-76).
- Ezirim, C. B., Muoghalu, M. I., & Elike, U. (2008). Inflation versus Public Expenditure Growth in the U.S: An Empirical Investigation. North American Journal of Finance and Banking Research, 2(2), 26-40.
- Friedman, M., & Schwartz, A. (1970). Monetary Statistics of the United States. – New York.
- Gillman, M., & Kejak, M. (2011). Inflation, Investment and Growth: A Money and Banking Approach. Economica, London School of Economics and Political Science, 78(310), 260-282.
- Han, S., & Mulligan, C. B. (2008). Inflation and the size of the Government. Federal Reserve Bank of St. Louis Review, 90(3), 245-67.
- Hineline, D. R. (2007). Examining the Robustness of the Inflation and the Growth Relationship. Southern Economic Journal, 73(4), 1020-1037.
- Ibarra, Raul, & Trupkin, Danilo R. (2016). Reexamining the relationship between inflation and growth: Do institutions matter in developing countries? Economic Modelling, Elsevier, 52(PB), 332-351.
- Kartayev, P. (2017). Влияние инфляционного таргетирования на динамику ВВП в долгосрочной перспективе: межстрановое исследование. Доклад на научном семинаре ЦМАКП [Vlijanie infljacionnogo targetirovanija na dinamiku VVP v dolgosrochnoi perspective: mezhstranovoe issledovanie. Doklad na nauchnom seminare CMAKP].
- Khan, M., & Senhadji, A. (2001). Threshold Effects in the Relationship between Inflation and Growth. IMF Staff Papers, Vol. 48(1).
- Kremer, S., Bick, A., & Nautz, D. (2013). Inflation and growth: new evidence from a dynamic panel threshold analysis. Empirical Economics, Springer, Vol. 44(2), 861-878.
- Kurihara, Y. (2013). Does Adoption of Inflation Targeting Reduce Exchange Rate Volatility and Enhance Economic Growth. Journal of World Economic Research, Vol. 2, 6, 104-109.
- Leong, C.-M., Puah, C.-H., Liew, V., K.-S. (2018). The Impact of Divisia Money on Monetary Model of Exchange Rate in Indonesia. Economics and Sociology, 11(2), 52-63.
- Lin, S., & Ye, H. (2007). Does inflation targeting really make a difference? Evaluating the treatment effect of inflation targeting in seven industrial countries. Journal of Monetary Economics, 54, 2521-2533.
- Lioui, A., & Poncet, P. (2008). Monetary Non-Neutrality in the Sidrauski Model under Uncertainty. Economic Letters, 100, 22-26.
- López-Villavicencio, A., & Mignon, V. (2011). On the impact of inflation on output growth: Does the level of inflation matter? Journal of Macroeconomics, 33, 455-464.
- Mendoza, E. G., & Terrones, M. E. (2008). An anatomy of credit booms: evidence from macro aggregates and micro data (NBER Working Paper 14049).
- Malyovanyi, M., Nepochatenko, O., Nesterchuk, Y. (2018). Conceptual Approaches to Improving the Functioning of Non-state Social Insurance Institutions in Ukraine. Economics and Sociology, 11(2), 289-304.
- Mishchenko, S. V., Naumenkova, S. V., & Lon, I. M. (2016). Монетарні цикли в економіці України [Monetarni tsykly v ekonomitsi Ukrainy]. Aktualni Problemy Ekonomiky, 11, 363-372.
- Mollick, A. V., Cabral, R., & Carneiro, F. G. (2011). Does Inflation Targeting Matter for Output Growth? Evidence from Industrial and Emerging Economies. Journal of Policy Modeling, 33(4), 537-551.
- Omay, T., & Kan, E. O. (2010). Re-examining the Threshold Effects in the Inflation-Growth Nexus with Cross-Sectionally Dependent Non-linear Panel: Evidence from Six Industrialized Economies. Economic Modelling, 27, 996-1005.
- Orphanides, A., & Solow, R. (1990). Money, Inflation and Growth. In B. M. Friedman & F. H. Hahn (Eds.), Handbook of Monetary Economics. Amsterdam: North-Holland.
- Pain, N., Koske, I., & Sollie, M. (2006). Globalization and inflation in the OECD economies (OECD, Economic department Working Paper, 524).
- Sachsida, A., Carneiro, F. G., & Loureiro, P. R. A. (2003). Does Greater Trade Openness Reduce Inflation? Further Evidence using Panel Data Techniques. Economic Letters, 81, 315-319.
- Sarel, M. (1996). Non-linear Effects of Inflation on Economic Growth. IMF Staff Papers 43(1), 199-215.
- Zhuravka, F. O. (2008). Вплив девізної політики Національного банку України на обмінний курс гривні [Vplyv deviznoi polityky Natsionalnoho banku Ukrainy na obminnyi kurs hryvni]. Actualni Problemy Ekonomiky, 5, 54-160.
-
Impact on poverty and income inequality in Malaysia’s economic growth
Rabiul Islam ,
Ahmad Bashawir Abdul Ghani ,
Irwanshah Zainal Abidin ,
Jeya Malar Rayaiappan
doi: http://dx.doi.org/10.21511/ppm.15(1).2017.05
Problems and Perspectives in Management Volume 15, 2017 Issue #1 pp. 55-62 Views: 11917 Downloads: 5693 TO CITE АНОТАЦІЯPoverty and income inequality are extreme issues that still exist in Malaysia. Any rise in poverty and income inequality definitely affect economic growth. There are many great efforts taken by the government of Malaysia to eradicate poverty and to reduce the gap of income inequality which occurs since 1970’s. The incidence of poverty and income inequality is higher in rural areas compared to urban areas. This paper is mainly to study the level of poverty and income inequality in Malaysia together with government intervention to develop Malaysia’s economic growth. The research is focused among the working people at Ipoh, Perak. In this paper, questionnaire forms are being distributed to get information regarding the issue of poverty and income inequality. It also looks into the strategies taken by the government of Malaysia to eradicate poverty and income inequality. Few recommendations are given in terms of education policy, financial aid and assistance from government and non-government organization (NGO) to upgrade the standard and quality of living among the poor and lower-income group of people.
-
Impact of inflation on economic growth: evidence from Nigeria
Anthony Olugbenga Adaramola ,
Oluwabunmi Dada
doi: http://dx.doi.org/10.21511/imfi.17(2).2020.01
Investment Management and Financial Innovations Volume 17, 2020 Issue #2 pp. 1-13 Views: 9135 Downloads: 5470 TO CITE АНОТАЦІЯIn an attempt to examine the influence of inflation on the growth prospects of the Nigerian economy, the study employs the autoregressive distributed lag on the selected variables, i.e. real gross domestic product (GDP), inflation rate, interest rate, exchange rate, degree of economy`s openness, money supply, and government consumption expenditures for the period 1980–2018. The study findings indicate that inflation and real exchange rate exert a significant negative impact on economic growth, while interest rate and money supply indicate a positive and significant impact on economic growth. Other variables in the model depict no influence on the economic growth of Nigeria. The causality result shows the unidirectional relationships between interest rate, exchange rate, government consumption expenditures and gross domestic product. However, inflation and the degree of openness show no causal relationship with gross domestic product. As a result, the study recommends that a more pragmatic effort is needed by the monetary authorities to target the inflation vigorously to prevent its adverse effect by ensuring a tolerable rate that would stimulate the economic growth of Nigeria.
-
Formalization of the impact of imbalances in the movement of financial resources on economic growth of countries in Central and Eastern Europe
Serhiy Kozmenko ,
Maxim Korneyev
doi: http://dx.doi.org/10.21511/afc.01(1).2017.06
Accounting and Financial Control Volume 1, 2017 Issue #1 pp. 48-58 Views: 7875 Downloads: 1375 TO CITEThe article deals with the impact of financialization on economic growth in countries of Central and Eastern Europe. It determinesthe impact of imbalances in the movement of financial resources caused by financialization on economic growth of these countries. It proves that the implementation of measures aimed at increasing the openness of the economy and maintaining solvent demand have a positive impact on economic growth of the surveyed countries in the long run. It also proves the importance of developing a set of measures of strategic nature regulating imbalances in the movement of financial resources caused by financialization.
