Macro-Economic Literature Review

Like many countries, industrialized and developing, one of the most fundamental objectives of macroeconomic policies is to sustain high economic growth together with low inflation. The variable inflation is very important to macroeconomists, financial analyst, academicians, policy makers and central bankers officials in understanding the responsiveness to Gross Domestic Product (GDP) to the change in general level and thus come up with the relevant policies so as to keep prices at the reasonable rate that stimulate production. In this present paper, the effect of inflation, interest rates, and exchange rates on the economic growth of a country is investigated. The relationship between inflation and economic growth have already been investigated in the economic literature. Keynesian Model explains that there is a short run tradeoff between output and the change of inflation but no permanent tradeoff between output and inflation. The Mundell-Tobin effect suggests that nominal interest rates would rise less than one-for-one with inflation. In other words, an increase in the exogenous growth rate of money increases the nominal interest rate and velocity of money but decreases the real interest rate.

Mallik and Chowdhury (2001), they are among the supporters of positive

In the paper, the data set consist of several macroeconomic variables including inflation for 93 countries. The complete data consists of several macroeconomic variables including consumer price inflation, corresponding to 93 countries. Outside from using simple panel regressions, Fischer also used a simple alternative to mixed regressions, a production function based approach pioneered by Victor Elias in 1992. The approach is a regression analogue of growth accounting, which helps identify the channels through which microeconomic variables affect