IMF Paper Looks at How Inflation Anchoring Affects Growth

My new paper with Sangyup Choi and Davide Furceri has been featured the Central Banking:

“A working paper published by the International Monetary Fund has concluded anchoring inflation expectations – rather than the level of inflation – is what has a statistical effect on growth.

In their paper, Sangyup Choi, Davide Furceri, and Prakash Loungani explore whether low inflation and the anchoring of inflation expectations are positive for economic growth, as central bankers often assert.

While they find inflation anchoring fosters growth in industries that are more credit-constrained, the authors also attempt to “disentangle” the effect of inflation anchoring from the effect of the level of inflation.

Using data on sectoral growth for 36 advanced and emerging market economies from 1990–2014, the authors “explicitly” control for interactions between “the level of inflation and industry-specific measures of credit constraints”.

“While these two channels tend to be correlated, since low inflation is often achieved by better inflation anchoring … the results of the analysis suggest that it is inflation anchoring and not the level of inflation per se that has a statistical effect on growth,” they say.”

Posted by at 8:57 AM

Labels: Inclusive Growth


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