Inflation and Economic Growth: A Smooth Transition Regression (STR) Approach

Fallahi, Firouz; Asgharpur, Hossein; Motaffaker Azad, Mohammad Ali; Montazeri Shoorekchali, Jalal

doi:10.22096/esp.2012.26172

Inflation and Economic Growth: A Smooth Transition Regression (STR) Approach

Document Type : Original Article

Authors

Firouz Fallahi ¹

Hossein Asgharpur ¹

Mohammad Ali Motaffaker Azad ²

Jalal Montazeri Shoorekchali ³

¹ Assistant Professor of Economics, University of Tabriz

² Professor of Economics, University of Tabriz

³ Master of Economics, University of Tabriz

10.22096/esp.2012.26172

Abstract

This paper examines the asymmetric effect of inflation on the economic growth in Iran during the period 1990:2 – 2008:2. To that end, we use a smooth transition regression model which allows having a regime change in the relationship between the variables.
We found evidence of threshold behavior in the relationship between the inflation rate and the economic growth in Iran; such that, there is a threshold level of inflation which beyond that the relationship between these variables changes. This estimated threshold for the quarterly inflation rate is 4.56. The results also show that there is a positive contemporaneous relationship between the inflation rate and the economic growth in the first regime, where the inflation rate is below 4.56; however, for the periods with an inflation rate higher than 4.56 there is not any significant relationship between the inflation rate and the economic growth. In addition, the effects of the government expenditures and investment are regime-dependent and change over the time.

Keywords

Inflation

economic growth

Iran

Nonlinear Models

Regime Change

Smooth Transition

الف- فارسی
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