@article{Macroeconomic:668,
      recid = {668},
      author = {Cozier, Barry and Selody, Jack},
      title = {Inflation and Macroeconomic Performance: Some  Cross-Country Evidence},
      publisher = {Bank of Canada},
      address = {1992},
      pages = {1 online resource (iii, 57 pages)},
      abstract = {The paper examines the hypothesis that high and variable  inflation damages long-run macroeconomic performance.  Empirical studies of this hypothesis are scarce despite  numerous theoretical arguments as to why inflation and  inflation uncertainty hinder economic performance. The  results — based on 25 years of data from 62 countries —  suggest that significant net benefits derive from a  monetary policy that is directed to maintaining a stable  and predictable price level. This paper tests for costs of  inflation within the context of a modified version of the  neoclassical growth model with human capital, developed by  Mankiw, Romer and Weil (A Contribution to the Empirics of  Economic Growth, NBER, 1990). The neoclassical model is  well-suited to testing the hypothesis that inflation is  harmful to economic performance. The vast majority of the  literature on the costs of inflation suggests that the  distortions caused by inflation are fundamentally long  lasting and have their largest effect on total-factor  productivity, which is a primary determinant of income per  capita. These distortions should show up clearly in the  Solow model, since it was designed to explain the  steady-state level of income per capita. The empirical work  in the paper uses the Summers-Heston data base of  macroeconomic variables standardized to facilitate  international comparisons (Summers and Heston, "A New Set  of International Comparisons of Real Product and Price  Levels Estimates for 130 Countries, 1950-1985," Review of  Income and Wealth, 1988). The results of the study indicate  that the level of inflation and perhaps also its volatility  have a negative long-run effect on income per capita, even  after controlling for differences in savings rates,  investment in human capital and population growth rates.  The effect is particularly pronounced within countries  belonging to the Organisation for Economic Co-operation and  Development (OECD). The results are consistent with  inflation having its largest distorting effect on  total-factor productivity. The introduction of inflation  into the model does not affect Mankiw, Romer and Weil's  finding that countries converge to their steady-state level  of income per capita at about the rate predicted by the  augmented Solow model. This result is consistent with the  view that inflation has its largest effect on the  steady-state level of per capita income.},
      url = {http://www.oar-rao.bank-banque-canada.ca/record/668},
      doi = {https://doi.org/10.34989/swp-1992-6},
}