The effect of inflation on the natural rate of output: Experimental evidence

Mary Bange, William T Bernhard, Jim Granato, Lauren Jones

Research output: Contribution to journalArticle

Abstract

We examine the inflation-output relationship in the USA for the period 1955-90. We start by replicating Smyth (1992) and subjecting his estimates to a series of diagnostic tests. The model is shown to satisfy conditions for valid inference (weak exogeneity) and policy analysis (super-exogeneity) (Engle, Hendry and Richard, 1983). These robustness checks allow us to study the out-of-sample consequences of the point estimates for various levels of inflation. One central experimental result is that for inflation rates exceeding 4% the natural rate of output is reduced to such an extent that it contributes to a reduction in the growth rate of real GNP that is below historical trend (3.1% in our sample).

Original languageEnglish (US)
Pages (from-to)1191-1199
Number of pages9
JournalApplied Economics
Volume29
Issue number9
DOIs
StatePublished - Sep 1997
Externally publishedYes

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ASJC Scopus subject areas

  • Economics and Econometrics

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