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DYNAMIC RELATIONSHIP BETWEEN INFLATION AND FINANCIAL DEVELOPMENT

Published online by Cambridge University Press:  23 April 2010

Dong-Hyeon Kim  and
Shu-Chin Lin
Dong-Hyeon Kim
Affiliation:
Providence University and Dankook University
Shu-Chin Lin*
Affiliation:
Tamkang University and Kyung Hee University
*
Address correspondence to: Shu-Chin Lin, Department of Economics, Tamkang University, 151 Ying-Chun Road, Tamsui 25137, Taipei County, Taiwan; e-mail: [email protected].
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Abstract

This paper studies the long- and short-run relationships between inflation and financial development. Applying the Pooled Mean Group estimator of Pesaran, Shin, and Smith (1999, Journal of the American Statistical Association 94, 621–634) to unbalanced panel data for 87 countries over the period 1960–2005, we find that a negative long-run relationship between inflation and financial development coexists with a positive short-run relationship. However, when the data are split into different income or inflation groups, these results can be observed only in low-income or low-inflation economies.

Keywords

InflationFinancial DevelopmentPooled Mean Group Estimator
Type
Articles
Information
Macroeconomic Dynamics , Volume 14 , Issue 3 , June 2010 , pp. 343 - 364
Copyright
Copyright © Cambridge University Press 2010

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