Inflation and Growth in Egypt: Is There a Threshold Effect?

Hanaa Kheir-El-Din

in What Drives Prices in Egypt?

Published by American University in Cairo Press

Published in print November 2009 | ISBN: 9789774163036
Published online September 2011 | e-ISBN: 9781617970344 | DOI:
Inflation and Growth in Egypt: Is There a Threshold Effect?

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To investigate the relationship between two of the most important and most closely monitored macroeconomic variables: inflation and growth are the main purpose of this chapter. It is generally agreed in the literature that inflation only has an adverse effect on economic growth after it crosses a threshold level. In a country with a fixed exchange rate, inflation would lead to a deterioration of the trade balance and to speculative capital outflows in anticipation of devaluation. The threshold level of inflation above which inflation significantly slows growth is estimated at 1–3 percent for industrial countries and 11–12 percent for developing countries. The negative and significant relationship between inflation and growth for inflation rates above the threshold level is quite robust.

Keywords: macroeconomic variables; inflation; economic growth; trade balance; growth; devaluation; inflation rates

Chapter.  8742 words.  Illustrated.

Subjects: Political Economy

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