Inflation Anchoring and Growth: Evidence from Sectoral Data / Sangyup Choi, Davide Furceri, Prakash Loungani.

Format:

Book

Government document

Author/Creator:

Choi, Sangyup.

Contributor:

Furceri, Davide.

Loungani, Prakash.

International Monetary Fund, issuing body.

Series:

IMF Working Papers; Working Paper ; No. 2018/036

IMF Working Papers

Language:

English

Subjects (All):

Inflation (Finance).

Physical Description:

1 online resource (39 pages)

Edition:

1st ed.

Place of Publication:

Washington, D.C. : International Monetary Fund, 2018.

Summary:

Central bankers often assert that low inflation and anchoring of inflation expectations are good for economic growth (Bernanke 2007, Plosser 2007). We test this claim using panel data on sectoral growth for 22 manufacturing industries for 36 advanced and emerging market economies over the period 1990-2014. Inflation anchoring in each country is measured as the response of inflation expectations to inflation surprises (Levin et al., 2004). We find that credit constrained industries—those characterized by high external financial dependence and R&D intensity and low asset tangibility—tend to grow faster in countries with well-anchored inflation expectations. The results are robust to controlling for the interaction between these characteristics and a broad set of macroeconomic variables over the sample period, such as financial development, inflation, the size of government, overall economic growth, monetary policy counter-cyclicality and the level of inflation. Importantly, the results suggest that it is inflation anchoring and not the level of inflation per se that has a significant effect on average industry growth. Finally, the results are robust to IV techniques, using as instruments indicators of monetary policy transparency and independence.

Contents:

Cover

Contents

I. Introduction

II. Inflation Anchoring and Growth: The role of credit constraints

III. Data

A. Inflation Anchoring

B. UNIDO data

C. Industry-level characteristics

IV. Methodology

V. Results

A. Baseline results

B. Robustness checks

VI. Conclusions

References

List of Figures

1 Inflation anchoring and industry growth: the role of credit constraints

2 Change in inflation expectations and inflation shocks (percentage points)

3 Corrections between the sensitivity of inflation expectations and other factors

List of Tables

1 Industry-specific intrinsic characteristics

2 Correlation matrix of industry-specific characteristics

3 Country coverage and the number of industries used in the analysis

4 The effect of inflation anchoring on industry growth: Value added

5 The effect of inflation anchoring on industry growth: Gross output

6 The effect of inflation anchoring on industry growth: WLS

7 The effect of inflation anchoring on industry growth: Alternative measure of degree of inflation anchoring

8 The effect of inflation anchoring on industry growth: Omitted variable bias and alternative explanations

9 The effect of inflation anchoring on industry growth: Omitted variable bias and alternative explanation (continued)

10 The effect of inflation anchoring on industry growth: IV regression

Appendix

A.1 Industry classification: INDSTAT2 vs. INDSTAT3.

Notes:

Includes bibliographical references.

Description based on publisher supplied metadata and other sources.

Description based on print record.

ISBN:

9781484344323

1484344324

9781484344347

1484344340

OCLC:

1029499960