Inflation and the finance–growth nexus

Huang, Ho‐Chuan; Lin, Shu; Kim, Dong Hyeon; Yeh, Chih Chuan

doi:10.1016/j.econmod.2009.09.003

Cited by 63 publications

(48 citation statements)

References 39 publications

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“…Given this perspective, we believe that financial development is likely to be hurt due to the presence of high inflation rates in the economy. Moreover, these findings are also consistent with the views of Rosseau and Wacthel (2002), Yilmazkuday (2009) andHuang et al (2010), which have argued that cost of inflation weakens the effectiveness of financial deepening. In a similar vein, Naceur et al In terms of looking at the impact of population density on financial sector development, Schiever and Shoven (1997) develop the argument that aging population may affect the composition of financial markets.…”

Section: Review Of Related Literaturesupporting

confidence: 81%

Is globalization detrimental to financial development? Further evidence from a very large emerging economy with significant orientation towards policies

et al. 2017

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This study attempts to explore the relationship between globalization and financial development by endogenising economic growth, population density, inflation and institutional quality for India during the period from 1971-2013. Using the more conclusive Bayer-Hanck (2013) combined cointegration method, the study provides evidence of cointegration among these variables. The long run and short run estimates from the ARDL model and causality tests respectively suggest that globalization in its all forms (political, social and economic) and its overall measure as well as inflation are detrimental to financial development, while economic growth and population density both promote financial development. Further, the results also point out that institutional quality is not conducive to financial development in India, and there exists a feedback effect between financial development and inflation. Moreover, financial development is influenced by economic growth, institutional quality and population density.JEL Classifications: F00, F36, C22

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Section: Review Of Related Literaturesupporting

confidence: 81%

Is globalization detrimental to financial development? Further evidence from a very large emerging economy with significant orientation towards policies

et al. 2017

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“…2. There exists strong negative association among inflation, bank credit to the private sector, bank assets, and bank liabilities (Boyd et al 2001;Rosseau and Wachtel 2002;Rosseau and Yilmazkuday 2009;Huang et al 2010;Bittencourt 2011;Choi et al 1996) 6 . Furthermore, it has been found a positive link between inflation and interest rates which in turn inhibits bank loan demand (Calza et al 2006;Ibrahim and Shah 2012).…”

Section: Economic and Financial Backgroundmentioning

confidence: 99%

Growth, bank credit, and inflation in Mexico: evidence from an ARDL-bounds testing approach

2014

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This paper explores the long-run effects of inflation on the dynamics of private sector bank credit and economic growth in Mexico over the period 1969-2011. With an ARDL-type model, the statistical results suggest that the availability of private sector bank credit in the economy exerts a positive impact on real GDP. In addition, inflation rates have contributed negatively to the increase in private credit, liquid liabilities, and financial development. A key outcome is that one percent increase in inflation is associated with a 0.07 % fall in long-run real rate of output through its effect on bank credit to the private sector. Another crucial finding is that policies of financial liberalization have helped stimulate economic growth. Reinforcing the literature on finance and growth, this study reaffirms that inflation rates are detrimental to long-run financial development and economic growth.

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“…In a different context, Huang et al (2010) investigated whether there are any inflationary thresholds in the finance-growth linkage. By applying the Caner and Hansen (2004) instrumental-variable threshold regression approach to the dataset of Levine et al (2000), they find strong evidence of a nonlinear inflation threshold in the relationship; below which financial development exerts a significantly positive effect on economic growth, above which, the growth effect of finance appears to be insignificant.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Though the theoretical positions on the subject are diverse, a considerably large body of empirical works has provided support for the proposition that inflation affects financial development negatively, thus price stability must be an essential precondition for successful financial development (Boyd et al, 1996;Ghazouani, 2005;Bittencourt, 2008;Huang et al, 2010;Keho, 2009). While this suggestion appears legitimate and reasonably satisfactory, less agreement exists amongst many monetary authorities on its definition and consequently the ways to achieving it.…”

Section: Introductionmentioning

confidence: 99%

Inflation and Financial Development: Evidence

Abbey¹

2012

American Journal of Economics and Business Administration

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The study examined the impact of inflation on financial development in Ghana using quarterly time series data (1990)(1991)(1992)(1993)(1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008). It was in line with the empirical works that provided support for the proposition that inflation affects financial development negatively. While price stability has been emphasized in the literature to be the best antidote in addressing the problem, recent evidence of disagreements on its definition and the ways to achieving it, coupled with, threshold effects between the two variables have questioned the precise link between the two variables and their acclaimed antidote. The study therefore made use of the Cointegration Approach the Granger Causality testing procedure suggested and the Conditional Least Squares technique to address these issues for the case of Ghana. The study established several statistically significant and economically meaningful relationships between the two variables. Pair-wise correlation analysis established a negative association between the two variables. In contrast, conflicting results were produced with regression analysis: the relationship between the two variables in the short run was established to be positive, while no relationship at all was established in the long run. Furthermore, a unidirectional causal link was established to be running from inflation to financial development; when the ratio of private sector credit to GDP and the market capitalization ratio were used as indicators for financial development. Lastly, threshold effects were observed in the inflation-financial development relation for inflation rates between 11-16% per annum. The study thus recommended the definition of price stability for inflation rates between 11-16% in support of financial development in Ghana. Additionally, it was recommended that the country should promote financial sector policies in a more holistic approach, as financial development does not granger cause inflation or inflationary pressures.

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Inflation and the finance–growth nexus

Cited by 63 publications

References 39 publications

Is globalization detrimental to financial development? Further evidence from a very large emerging economy with significant orientation towards policies

Is globalization detrimental to financial development? Further evidence from a very large emerging economy with significant orientation towards policies

Growth, bank credit, and inflation in Mexico: evidence from an ARDL-bounds testing approach

Inflation and Financial Development: Evidence

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