tailieunhanh - RELATIONSHIP BETWEEN INFLATION AND ECONOMIC GROWTH

The reliability of New Zealand’s electricity supply improved from 1995 to 2000, but has not shown any signifi cant improvement in recent years. The national average real electricity price fell by about a quarter between 1979 and 1993, but has since risen to be about the same as it was in 1979. The available data on transport infrastructure are more limited. As is typical of other sparsely populated OECD countries, New Zealand has a relatively extensive roading network relative to other OECD countries. It also has similar levels of road traffi c to the OECD mean. Institutions and. | RELATIONSHIP BETWEEN INFLATION AND ECONOMIC GROWTH Vikesh Gokal Subrina Hanif Working Paper 2004 04 December 2004 Economics Department Reserve Bank of Fiji Suva Fiji The views expressed herein are those of the authors and do not necessarily reflect those of the Reserve Bank of Fiji. The authors are grateful to Edwin Dewan and Alisi Duwai for their valuable assistance in preparing the working paper as well as other colleagues in the Economics Department for their comments in earlier drafts. Abstract Like many countries industrialised and developing one of the most fundamental objectives of macroeconomic policies in Fiji is to sustain high economic growth together with low inflation. However there has been considerable debate on the nature of the inflation and growth relationship. In this paper we have reviewed several different economic theories to ascertain consensus on the inflation - growth relationship. Classical economics recalls supply-side theories which emphasise the need for incentives to save and invest if the nation s economy is to grow. Keynesian theory provided the AD-AS framework a more comprehensive model for linking inflation to growth. Monetarism reemphasised the critical role of monetary growth in determining inflation while Neoclassical and Endogenous Growth theories sought to account for the effects of inflation on growth through its impact on investment and capital accumulation. The paper also reviews recent empirical literature. This includes studies by Sarel 1996 Andres Hernando 1997 and Ghosh Phillips 1998 and Khan Senhadji 2001 amongst others. Ultimately we tested whether a meaningful relationship held in Fiji s case. The tests revealed that a weak negative correlation exists between inflation and growth while the change in output gap bears significant bearing. The causality between the two variables ran one-way from GDP growth to inflation. Introduction Like many countries industrialised and developing one of the most fundamental .