Macroeconomic Economic Growth

1371 Words6 Pages
1.0 Overview Summary 1.1 Background of the Study
The relationship between inflation and economic growth is a debated topic. According to the Khan and Senhadji (2001), the different level of economic development countries will show the different result of the effects on inflation to economic growth as means that the inflation rate of the developing and undeveloped countries is higher than the developed countries. Besides, the highest the macroeconomic development such as trade openness, public expenditure and capital accumulation bring nonlinearity relationship of inflation to the economic growth. This is because the high volatility of exchange rate and the competition between countries during the trade openness has increased the inflation.
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To identifies several thresholds for the global sample with the various income-specific sub-samples and investigate the relationship of nonlinearity.
II. To examine the characteristic of country-based macroeconomic which affect the nonlinearity.

1.3 Problem Statement/ Issue
The problems on this research will be answer by the following questions:
I. Does the negative impact of inflation on economic growth are able to withstand the level of development of an economy?
II. Does inflation begin to stop long-term growth at which level?
III. What is the characteristic of specific-country that change the direction and intensity of the impact of inflation on economic activity?

2.0 Empirical Findings of Past Studies
The literature review contains the different finding that shows the relationship between inflation and economic growth. The purpose of past studies is used to determine whether the inflation really brings the effect to economic growth.

2.1 The inflation–growth relationship: empirical
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If the value of interaction variable of the parameter is negative which means there is nonlinear relationship between inflation and economic growth. Based on the result, the interaction variable shown the negative value which means that the inflation and the economic growth is confirmed as nonlinear relationship.

4.2 GMM
The GMM model tests the effect of inflation to economic growth through the macroeconomic variables. Based on the result in this research shown that most of the variables are significant as the inflation brings the negative effect to the economic growth except the initial GDP variable which is not significant. The high level of variable will cause the inflation and the economic growth become weak. 5.0 Limitation 5.1 Method
The researcher use PTSR and GMM model to test the relationship between inflation and economic growth. There is less of the method used to test the impact of relationship. The result will become more accurately if there have much evidence to prove and support the opinion through the estimation of more suitable
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