The Impact of Inflation on the Business Cycle and Economic Growth: An Empirical Analysis

Sani, Abdullahi Sule and Lukman, Hakim and Tetuko, Rawidyo Putro and Putra, Pamungkas (2024) The Impact of Inflation on the Business Cycle and Economic Growth: An Empirical Analysis. InternationalJournalonEconomics,FinanceandSustainableDevelopment(IJEFSD), 6 (11). pp. 274-286. ISSN 2615-4021

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Abstract

This paper investigates the complex relationship between inflation, business cycles, and economic growth, focusing on both theoretical and empirical perspectives. The primary aim is to understand how inflation impacts key economic variables such as investment, consumption, em-ployment, and productivity and to identify effective policy responses. Specifically, the study’s ob-jectives are to examine the mechanisms through which inflation affects the business cycle, quantify its impact on long-term economic growth, and evaluate policy strategies for managing inflation’s adverse effects. Methodologically, we employ panel data analysis using econometric models across a sample of countries from 1990 to 2021. This approach allows for cross-country comparisons and controls for country-specific factors, providing robust estimates of inflation’simpact on GDP growth, unemployment, and investment. The findings indicate a statistically significant negative relationship between high inflation and GDP growth, especially when inflation rates exceed 10%. Additionally, inflation is shown to reduce investment levels and increase unemployment, aligning with Phillips curve implications in the short term and supporting inflation neutrality in the long run as expectations adjust.Theoretically, this study contributes to existing literature by confirming the threshold effect of inflation on growth, where moderate inflation may coexist with growth but high inflation disrupts economic stability. Methodologically, the use of panel regression models high-lights the efficacy of country-level fixed effects in capturing inflation’s diverse impacts across dif-ferent economic contexts. Practically, the research underscores the importance of inflation-targeting frameworks, counter-cyclical fiscal policies, and structural reforms to enhance resilience and sup-port sustained economic growth. These insights offer valuable guidance for policymakers seeking to balance inflation control with economic stability

Item Type:	Article
Subjects:	H Social Sciences > HB Economic Theory
Divisions:	Postgraduate > Master's of Management
Depositing User:	Journal Editor
Date Deposited:	27 Nov 2024 05:19
Last Modified:	27 Nov 2024 05:19
URI:	http://eprints.umsida.ac.id/id/eprint/14697

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