Making the most of high inflation

Wojciech Charemza, Svetlana Makarova, Imran Hussain Shah

Research output: Contribution to journalArticle

3 Citations (Scopus)
143 Downloads (Pure)

Abstract

The article examines the relationship between the real effects of inflation and its level in countries with frequent episodes of high inflation. The real effects are computed as asymmetric impulse responses of output to inflation separately for the regimes with different signs of the differences between the expected inflation and the predicted output-neutral inflation. It is found that, with the increase in inflation, such effects increase for the regime with the positive sign, relatively to the effects for the regime with the negative sign. It is also shown that this finding is valid for most countries with high inflation episodes, where inflation is greater than 4.8% for at least 25% of quarterly observations. This leads to a simple policy prescription that, in economies with frequent high inflation episodes, anti-inflationary monetary decisions are least damaging for output if undertaken in the periods when the difference between the expected and output-neutral inflation is negative.
Original languageEnglish
Pages (from-to)3723-3739
Number of pages17
JournalApplied Economics
Volume47
Issue number34-35
Early online date16 Mar 2015
DOIs
Publication statusPublished - 2015

Keywords

  • high inflation, real effects indicators, impulse response analysis

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