Threshold effects in the relationship between inflation and growth

This paper re-examines the issue of the existence of threshold effects in t he relationship between inflation and growth, using new econometric techniq ues that provide appropriate procedures for estimation and inference. The t hreshold level of inflation above which inflation significantly slows growt h is estimated at 1-3 percent for industrial countries and 11-12 percent fo r developing countries. The negative and significant relationship between i nflation and growth, for inflation rates above the threshold level, is quit e robust with respect to the estimation method, perturbations in the locati on of the threshold level, the exclusion of high-inflation observations, da ta frequency, and alternative specifications.