Inflation and economic growth in Latin America: Some panel time-series evidence

In this paper we investigate the role of macroeconomic performance, mainly in terms of rates of inflation, in determining economic growth in four Latin American countries which suffered hyperinflationary bursts in the 1980s and early 1990s, but that also differ in terms of development levels. The data set covers the period between 1970 and 2007, and the empirical results, based on panel time-series data and analysis, confirm the anecdotal evidence which suggests that inflation has had a detrimental effect to growth in the region. All in all, we highlight the fact that excessive inflation has clearly offset the Mundell-Tobin effect and consequently the high costs that inflation has had on economic activity in the region.

► We investigate the role of inflation on economic growth. ► We use a panel of four Latin American countries during the period 1970/2007. ► The methodology is based on panel time-series analysis. ► The results show that inflation has been detrimental to growth in the region.