Estimating threshold level of inflation in Swaziland: inflation and growth

The objective of this study is to estimate optimal threshold effect of inflation for the economy of Swaziland. The study applied the liner OLS and Two-Stage least squares (2SLS) methods to determine the optimal effect of inflation on growth. It used annual data for the period 1980 to 2015. The results of liner OLS method show that the estimated optimal threshold level is at 12%. The results show that inflation rate beyond optimal level of 12% decrease growth by 1.02%. Similar results were also found in applying 2SLS method, where inflation exerted a negative impact beyond threshold point by 18.5%. These findings on Swaziland economy have crucial implications for monetary policy makers in terms of keeping inflation below the threshold point to sustain a positive economic growth in the long run.