We introduce a dynamic panel threshold model to shed new light on the impact
of inflation on long-term economic growth. The empirical analysis is based on
a large panel-data set including 124 countries during the period from 1950 to
2004. For industrialized countries, our results confirm the inflation targets
of about 2% set by many central banks. For non-industrialized countries, we
estimate that inflation hampers growth if it exceeds 17%. Below this
threshold, however, the impact of inflation on growth remains insignificant.
Therefore, our results do not support growth-enhancing effects of inflation in
developing countries
