Nonlinear Impact of Inflation on Economic Growth in Nepal: A Smooth Transition Regression Approach

Hari Prasad Paudel; Nirmal Kumar Raut

doi:10.3126/nppr.v2i1.48676

Authors

Hari Prasad Paudel Central Department of Economics, Tribhuvan University
Nirmal Kumar Raut Central Department of Economics, Tribhuvan University

DOI:

https://doi.org/10.3126/nppr.v2i1.48676

Keywords:

Inflation, Growth, Nonlinearity, Inflation Threshold, Logistic Smooth Transition Regression, LSTR

Abstract

Economic growth has been a central issue of all governments and therefore numbers of studies have focused on identifying the factors affecting economic growth. This issue is more important in developing countries context that faces additional challenge of maintaining macroeconomic stability. In other words, the challenge they normally faced is attaining high and consistent production growth with low inflation. Keynesian concept of macroeconomic stability advocates maintaining external and internal balance with low inflation in order to achieve full employment and a stable economy. Particularly after the establishment of a new international monetary system that replaced gold standard and introduced the Bretton Woods system in 1970s (where U.S. dollar became the global currency), most economies experienced high inflation and low economic growth (Bhatta, 2015). This anomaly further strengthened the need of research to investigate the relationship between these two important macroeconomic variables i.e., to test the hypotheses whether there exists an inverse relationship between inflation and growth. This also therefore required answering the question at what levels should the inflation rate be constrained so that it does not start retarding the growth rate?

Author Biographies

Hari Prasad Paudel, Central Department of Economics, Tribhuvan University

Hari Prasad Paudel is an MPhil Graduate from Central Department of Economics, Tribhuvan University. He is also engaged as a researcher in several organizations. He is primarily interested in data analysis. He was also involved in a study on internal revenue generation and the prospects of different municipalities. His research interests are Economics of Development, Macroeconomics, Monetary Economics and Public Policy.

Nirmal Kumar Raut, Central Department of Economics, Tribhuvan University

Nirmal Kumar Raut is an Associate Professor in Economics at Tribhuvan University. Following his passion for academia, he joined Tribhuvan University as an Assistant Professor. He completed his MA (course work) and Ph.D. in Development Economics from National Graduate Institute for Policy Studies in Tokyo. Earlier to that, he also completed MA (with Gold Medal) and MPhil (with Distinction) in Economics from Tribhuvan University. His area of speciality is Development and Behavioral Economics. He is also a recipient of a few prestigious and competitive research grants and has his article published in prestigious journals including World Development and Progress in Disaster Science.

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