Examining the Robustness of the Inflation and Growth Relationship

Using Bayesian Model Averaging, we examine whether inflation's effects on economic growth are robust to model uncertainty across numerous specifications. Cross-sectional data provide little evidence of a robust inflation-growth relationship, even after allowing for non-linear effects. Panel data with fixed effects suggest inflation is one of the more robust variables affecting growth, and non-linear results suggest that high inflation observations drive the results. However, this robustness is lost when estimation is carried out with instrumental variables.