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Relationship Between Inflation And Economic Growth

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ECONOMIC GROWTH
The major objective of macroeconomic policies for every nation is to attain sustainable economic growth together with price stability. The importance given to price stability when conducting monetary policy amongst other things is to stimulate sustainable economic growth as well as strengthening the purchasing power of the local currency. The question of whether or not inflation is detrimental to economic growth has recently been a subject of strong argument to policy makers and macroeconomists. The bone of contention is that whether inflation is necessary for economic growth or it is harmful to economic growth. The effects of inflation on economic growth are more or less certainly biased towards that view that inflation is …show more content…

In their results, it was found that GDP causes inflation but inflation does not cause GDP. The result also showed that inflation has a positive impact on economic growth through encouraging productivity and output level and on evaluation of total factor …show more content…

Many studies including that of Hossain et al (2012), Mallik and Chowdhury (2001), Wai (1995) revealed divergent ideas about the relationship between inflation and economic growth. For example, Hossain et al (2012) was of the view that high inflation is devastating for an economy due the adverse effects it has on economic well-being of a country while very low or zero inflation is similarly detrimental to the economy. They suggest that a small level of inflation is desirable for a meaningful economic growth to ensue. Mallik and Chowdhury (2001) on the other hand discovered that there are lots of controversial issues concerning the relationship between inflation and economic growth. While some see inflation as being essential for a tangible economic growth, others believe that it hinders economic performance and growth. The belief that inflation hinders economic growth by having a negative impact is associated with scholars such as Fisher (1993), Bruno and Easterly (1995) as well as Barro (1995). Their beliefs might have been related to the fact that “in 1970s, nations with high inflation particularly the Latin American countries begun to experience a decrease in growth rates and thus caused the emergence of the views stating that inflation has negative effects on the economic growth instead of the positive effects” (Kasidi and Mwakanemela, 2013). Wai (1995) observe no

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