The Effects of Rate and Variability of Inflation on Output GrowthVariability: Evidence from Selected Countries

The relationship between the inflation rate and itsvariability and its effect on output growth has been investigated widelyduring the last two decades. Higher inflation rates lead to highervariability in inflation which causes greater uncertainty in productionand investment decisions. Consequently output growth is distorted. Logueand Sweeney (1981) argue that there is a positive effect of theinflation rate and its variability on the variability of real economicgrowth. In contrast to the fmdings of Logue and Sweeney (1981),Katsimbris (1985), using country level data (without pooling) foreighteen DECD countries, does not find support for the positiverelationship between the inflation rate and its variability and outputgrowth variability. According to him the positive and significantresults obtained by Logue and Sweeney from the cross-section (pooled)data are not reliable because of the aggregation bias. The present studyexamines empirically the effects of inflation rate and its variabilityon output growth variability in selected countries. 1 The plan of thepaper is as follows. Section 2 presents the methodology adopted in thestudy. The results are presented in Section 3. The last sectionsummarises the main conclusions.