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Investigating Non-linearities in the Inflation-Growth Trade-off in Transition Countries

Lena Malesevic, a teaching assistant at the Faculty of Economics in Split, Croatia, and a PhD student at Staffordshire University, UK, explores non-linear relationships between inflation and growth in transition countries. The study uses empirical work and models to analyze 8 transition countries over 13 years. Significance levels and robust standard errors were considered, highlighting static vs. dynamic models and the placement of the kink in the relationship.

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Investigating Non-linearities in the Inflation-Growth Trade-off in Transition Countries

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  1. Investigating non-linearities in the inflation-growth trade-off in transition countries Lena Malesevic Teaching assistant at the Faculty of Economics Split, Croatia PhD student at Staffordshire University, UK Dubrovnik, 27.6.2007

  2. Theory • Akerlof et al. (2000) • Palley (2003) • Impact on growth Empirical work • Khan and Senhadji (2000)- the threshold is estimated to be at 1-3 percent for industrial countries and 7-11 percent for developing countries.

  3. The model(s) Our sample consists of 8 transition countries (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia) and 13 years (1991-2003), i.e. 104 observations per each variable. (1) (2) (3) (4)

  4. *, ** and *** denote 1, 5 and 10 percent level of significance, respectively. Robust standard errors were used and year dummies included.

  5. (3) The coefficient (2) on the dummy variable, without year dummies, static panel *, ** and *** denote 1, 5 and 10 percent level of significance, respectively. Robust standard errors were used and year dummies included. The coefficient (2) on the dummy variable, without year dummies, dynamic panel

  6. R2 for different values of threshold inflation (*), without year dummies, static panel (4)

  7. Wald (chi2) for different values of threshold inflation (*), without year dummies, dynamic panel

  8. Conclusion • Static vs. dynamic model; • Non-linearities; • Placement of the kink?

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