Pappas, Anas asios; Boukas, Nikolaos
A icle
Examining impac o in la ion and in la ion ola ili y
on economic g ow h: E idence om Eu opean Union
economies
Economies
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Sugges ed Ci a ion: Pappas, Anas asios; Boukas, Nikolaos (2025) : Examining impac o in la ion and
in la ion ola ili y on economic g ow h: E idence om Eu opean Union economies, Economies, ISSN
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Published: 29 Janua y 2025
Ci a ion: Pappas, A., & Boukas, N.
(2025). Examining Impac o In la ion
and In la ion Vola ili y on Economic
G ow h: E idence om Eu opean
Union Economies. Economies,13(2), 31.
h ps://doi.o g/10.3390/
economies13020031
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A icle
Examining Impac o In la ion and In la ion Vola ili y on
Economic G ow h: E idence om Eu opean Union Economies
Anas asios Pappas 1,* and Nikolaos Boukas 2
1Hellenic Fiscal Council, G eece and Depa men o Economics, Na ional and Kapodis ian Uni e si y o
A hens, 15772 A hens, G eece
2Cen e o Sus ainable Managemen o Tou ism, Spo and E en s (CESMATSE), Eu opean Uni e si y
Cyp us, Nicosia 22006, Cyp us; [email p o ec ed]
*Co espondence: [email p o ec ed]
Abs ac : Examining he economies o he Eu opean Union om 2000 o 2023, we ha e
ound no s ong e idence ha he in la ion a e has a nega i e impac on economic g ow h.
In con as , in line wi h con en ional economic heo y, highe in e es a es a e associa ed
wi h lowe economic g ow h. The esul s emain consis en e en a e con olling o
a ious con ol a iables, non-linea i ies and endogenei y issues. These indings sugges
ha an agg essi e igh ening o mone a y policy in he eu o a ea, aimed a apidly b inging
in la ion unde con ol, could ac ually be de imen al o economic g ow h. Since he
nega i e e ec s o mone a y igh ening on g ow h a e clea , while he bene i s o apidly
educing in la ion on economic g ow h a e ambiguous, he Eu opean Cen al Bank mus be
cau ious abou bo h he in ensi y and he du a ion o mone a y igh ening.
Keywo ds: economic g ow h; in la ion; in la ion ola ili y; in e es a es; Eu opean Union;
panel da a
JEL Classi ica ion: E31; E40; E52; E58; O40
1. In oduc ion
The ecen in la iona y episode in he Eu opean Union compelled he Eu opean Cen al
Bank (ECB) o signi ican ly igh en i s mone a y policy, o coun e ac in la iona y p essu es.
O e a ou een-mon h pe iod, om July 2022 o Sep embe 2023, he ECB inc eased i s
key in e es a es by 450 basis poin s. This agg essi e mone a y igh ening aises conce ns
abou i s po en ial ad e se impac on economic g ow h, gi en ha highe in e es a es
end o nega i ely in luence in es men s and consump ion.
Con e sely, a ela i ely high in la ion a e may ad e sely a ec economic ac i i y.
Apa om he in la ion a e, economic ac i i y may be nega i ely in luenced by in la ion
ola ili y, as highligh ed by F iedman (1977). In his espec , as a as mone a y policy is
conce ned, he ECB is con on ed wi h a dilemma, gi en ha bo h high in e es a es and
in la ion o in la ion ola ili y ha e he po en ial o hinde economic g ow h.
This s udy p esen s e idence ega ding he ela ionship be ween in la ion a e, in-
la ion ola ili y, and g ow h in EU economies om 2000 o 2023. In addi ion, his s udy
ocuses on he e ec s o high in e es a es on economic g ow h in Eu ope. The econome ic
esul s sugges ha when ocusing exclusi ely on economic g ow h, he e is no ade-o in
he ECB’s policy choices. We ind no s a is ically signi ican e idence indica ing ha he in-
la ion a e a ec ed g ow h in Eu opean economies du ing he pe iod 2000–2023. Howe e ,
some e idence ha in la ion ola ili y nega i ely a ec s g ow h exis s. Fu he mo e, highe
Economies 2025,13, 31 h ps://doi.o g/10.3390/economies13020031
Economies 2025,13, 31 2 o 18
in e es a es a e s ongly ela ed o lowe eal g oss domes ic p oduc (GDP) g ow h o
Eu opean economies du ing he a o emen ioned pe iod.
This s udy makes wo signi ican con ibu ions o he exis ing li e a u e. Fi s , i sheds
ligh on an a ea ha has no ye been ex ensi ely in es iga ed: he nexus be ween in la ion
a e and in la ion ola ili y wi h eal g oss domes ic p oduc (GDP) g ow h in Eu opean
Union economies a e he es ablishmen o he ECB. Second, his s udy con ibu es o
he ongoing deba e ega ding he le el o ECB in e es a es. In he cu en ci cums ances
whe e he ECB is con on ed wi h he dilemma o ei he main aining high in e es a es o
educing hem, i is c ucial o conside , as pe he indings o his s udy, ha while high
in e es a es ha m economic g ow h, he in la ion a e does no seem o signi ican ly a ec
eal economic ac i i y. The e o e, a g ow h- iendly policy should align wi h a ajec o y o
lowe in e es a es.
The emainde o his pape is o ganized as ollows: Sec ion 2 e iews he ele an
li e a u e. Sec ion 3p o ides an o e iew o he a iables, da a, and econome ic me hod-
ology employed in his s udy. Sec ion 4p esen s he empi ical indings de i ed om bo h
linea and non-linea panel da a models. Sec ion 5explo es he obus ness o he p ima y
indings, conduc ing a se ies o igo ous obus ness es s. Finally, Sec ion 6concludes
he pape .
2. Li e a u e Re iew
2.1. Ea ly S udies on Rela ionship Be ween In la ion and G ow h
The ela ionship be ween in la ion and economic g ow h has been ex ensi ely in es i-
ga ed o decades, beginning in he 1960s
1
. A e he 1980s, in e es in his ela ionship was
ekindled, leading o he publica ion o a signi ican numbe o esea ch pape s a emp ing
o explo e whe he in la ion and g ow h a e di ec ly o in e sely associa ed. Fische (1993)
inds e idence ha in la ion may ha m g ow h by educing in es men and he a e o
p oduc i i y g ow h. Ne e heless, hese esul s a e alid only o e y high in la ion
episodes. Howe e , he s udy does no ind e idence ha low in la ion is a clea -cu pa h
o high g ow h, e en o e long pe iods. Ba o (1996) p o ides e idence o a nega i e
ela ionship be ween in la ion and g ow h h ough a channel o lowe in es men s. How-
e e , hese esul s hold o high in la ion expe iences, and he magni udes o he ad e se
e ec s on g ow h a e qui e mild. B uno (1995) and B uno and Eas e ly (1996,1998) also
in es iga e he ela ionship be ween g ow h and in la ion. Thei indings sugges ha his
ela ionship u ns nega i e only when high- equency da a a e examined, and speci ically,
only when he in la ion a e su passes a pa icula h eshold, which hey p opose o be 40%
annually. The main inding in he a o emen ioned s udies is ha hey e eal he nega i e
e ec s o in la ion on g ow h, pa icula ly a high in la ion a es and no ably well beyond a
double-digi ange. All hese indings can be summed up by Rogo ’s (2003, p. 79) ph ase
ha in la ion su passing he 40 pe cen ma k can be deemed acu ely damaging. I should
be no ed ha a signi ican amoun o esea ch was conduc ed du ing he 1990s, such as
hose by Le ine and Renel (1992), Le ine and Ze os (1993), and Sala-I-Ma in (1997a),
which ailed o es ablish a obus ela ionship be ween in la ion and economic g ow h.
Howe e , du ing he same pe iod, ano he se ies o s udies highligh ed he po en ial
nega i e impac o in la ion a es on g ow h, e en a lowe le els. Using a panel o 23
indus ial coun ies, Bu dekin e al. (1994) es ima ed ha a swi shi om ze o in la ion o
10% in la ion could educe he g ow h a e by one o wo pe cen age poin s. Sa el (1995)
lowe ed his h eshold o 8%. By examining 87 economies du ing he pe iod 1970–1990, i
was concluded ha he ela ionship be ween in la ion and economic g ow h is non-linea .
He inds ha when in la ion is low (below 8%), he e ec on g ow h is no signi ican ly
nega i e; in ac , i may e en be sligh ly posi i e. Howe e , abo e he s uc u al b eak o
Economies 2025,13, 31 3 o 18
he 8% annual in la ion a e, he e ec becomes nega i e. Gyl ason and He be sson (2001),
employing panel eg essions o 170 coun ies om 1960 o 1992, iden i ied a h eshold a
which in la ion a es exceeding 10% o 20% pe yea gene ally ha e an ad e se impac on
economic g ow h. Beyond his h eshold, he e ec o in la ion on g ow h becomes nega i e.
Fu he mo e, Ghosh and Phillips (1998) u he educed his h eshold o 5%, a guing ha
he mode a e o in e media e in la ion ange—pe haps 5–30 pe cen pe yea —nega i ely
a ec s economic g ow h.
2.2. In la ion and G ow h: Mo e Recen Empi ical E idence
In mo e ecen empi ical s udies, he e ha e been h esholds abo e which in la ion
has a nega i e impac on economic g ow h. A awa a i e al. (2018) ind ha when in la ion
exceeds a h eshold le el o 15–20%, a sha p decline in he long- un g ow h a e o income
is obse ed. Simila ly, He (2023) iden i ies a ze o ma ginal e ec on g ow h a 5% in la ion
using o dina y leas squa es (OLS) es ima ion and a 3% using ins umen al a iables (IVs)
es ima ion.
Mo eo e , he in la ion h eshold a ies acco ding o he g oup o coun ies analyzed.
Bu dekin e al. (2004) c i icize he g ouping o indus ial and de eloping economies when
examining he ela ionship be ween in la ion and g ow h, sugges ing ha i may lead
o un eliable esul s. Thei pape concludes ha he h eshold whe e in la ion becomes
ha m ul o g ow h is lowe han 20–40%; using a linea speci ica ion, hey ound a highe
h eshold o indus ial coun ies (8%) han o de eloping coun ies (3%). Fu he mo e,
Eggoh and Khan (2014) con i m he sensi i i y o he ela ionship be ween in la ion and
g ow h o he choice o coun y g oups. They ind a h eshold o 12.4% annual in la ion
o he global se o 102 de eloping and de eloped economies. Howe e , his h eshold
a ied among di e en g oups o economies: 3.4% o ad anced economies, 10% o uppe -
middle-income economies, 12% o middle-income economies, and app oxima ely 20%
o low-income economies. Simila ly, Espinoza e al. (2010) placed a h eshold abo e
10% o de eloping coun ies a e examining a panel o 165 coun ies and da a o 1960–
2007. Fo ad anced economies, he h eshold is ound o be much lowe . Ghossoub
(2023) also iden i ies a h eshold whe e he co ela ion be ween in la ion and economic
g ow h becomes nega i e. This h eshold is highe o de eloping economies compa ed
o ad anced ones, due o mo e concen a ed banking sys ems and highe egula ion in
de eloping coun ies.
The exis ence o a h eshold means ha in la ion below a ce ain u ning poin may
be bene icial o economic g ow h. Using o e 100 yea s o U.S. da a, Ahmed and Roge s
(2000) ind ha he e ec s o ela i ely low in la ion on ou pu a e posi i e. Pollin and
Zhu (2006), analyzing a se o 80 coun ies be ween 1961 and 2000, obse ed ha highe
in la ion is associa ed wi h mode a e gains in g oss domes ic p oduc (GDP) g ow h up
o a h eshold o app oxima ely 15–18%. Recen ly, Zhou (2019) p oposed a heo e ical
explana ion o a po en ial channel h ough which mode a e in la ion could ha e a posi i e
e ec on economic g ow h h ough in es men . In his ega d, in la ion may ha e a posi i e
e ec on g ow h by educing he liquidi y isk o in es men p ojec s. In addi ion, Huang
e al. (2021) explain ha in la ion can ha e a posi i e e ec on g ow h i a ie y-expanding
R&D (en y) is subjec o a cash-in-ad ance (CIA) cons ain . A CIA cons ain equi es
cash o be a ailable be o e ce ain ac i i ies, such as consump ion, p oduc ion, o R&D
in es men , can ake place. This cons ain a ec s how in la ion in luences economic
g ow h, as desc ibed in he Schumpe e ian g ow h model. Fu he mo e, Yilmazkuday
(2021) inds ha in la ion may esul in highe long- un g ow h especially in coun ies
wi h weake ins i u ions. When hese coun ies ha e limi ed access o di ec capi al (like
Economies 2025,13, 31 4 o 18
in es men s om p i a e sec o s o o eign in es o s), inc easing he money supply can ac
as a subs i u e and boos eal in es men in he economy.
2.3. In la ion Vola ili y and G ow h
In addi ion o he in la ion a e, in la ion ola ili y was examined o i s po en ial
ad e se e ec s on g ow h. As men ioned in he In oduc ion, F iedman (1977) s essed ha
in la ion ola ili y, a he han in la ion a e, ad e sely a ec s economic g ow h. In la ion
ola ili y could de imen ally a ec economic ac i i y by inc easing he eco ded a e o
unemploymen . Empi ical esea ch has explo ed hese heo e ical a gumen s. Judson
and O phanides (1999) examined a panel o 119 coun ies o e he pe iod 1959–1992 and
concluded ha in la ion ola ili y was obus ly and signi ican ly nega i ely co ela ed
wi h income g ow h ac oss in la ion le els and coun y ype. Ape gis (2005) in es iga ed
he impac o in la ion unce ain y on he g ow h o OECD coun ies om 1969 o 1999
and ound ha he e ec s a e nega i e. Acco dingly, Foun as e al. (2006) con i med he
de imen al e ec o in la ion on eal g ow h h ough he nominal unce ain y channel o
G7 coun ies. F iedman’s (1977) hypo hesis was ecen ly alida ed by Ži ko e al. (2020),
who disco e ed a nega i e impac o in la ion unce ain y on g oss domes ic p oduc (GDP)
g ow h in eigh Cen al and Eas e n Eu opean coun ies.
2.4. In la ion and G ow h in Eu opean Union Economies
This cu en li e a u e e iew p o ides b oad indings. Fi s , i is o en obse ed ha
he e is a ela i ely high h eshold, ypically abo e wo digi s in in la ion a es, whe e
in la ion u ns nega i e o g ow h when g ouping economies wi h di e en cha ac e is ics,
such as de eloping and de eloped coun ies. Second, he o ma ion o g oups wi h simila
economic cha ac e is ics may ha e con ibu ed o mo e obus and conclusi e esul s.
Thi d, in la ion ola ili y, and no jus a high in la ion a e, may ha e de imen al e ec s on
economic g ow h.
The e o e, ocusing on EU economies may yield mo e obus indings ega ding he
nexus be ween in la ion, in la ion ola ili y, and g ow h wi hin a g oup o coun ies sha ing
simila economic cha ac e is ics, s ee ing clea hype in la ion obse a ions
2
and ope a ing
unde he same cen al bank’s mone a y policy3.
To he bes o ou knowledge, he li e a u e on in la ion, in la ion ola ili y, and
g ow h exclusi ely ocused on Eu opean coun ies is ela i ely sca ce. Pin ilescu e al.
(2014) examined en Eu opean eme ging economies o he pe iod 1990 o 2013, aiming
o in es iga e he impac o in la ion unce ain y on ou pu g ow h. Thei esea ch has
e ealed only a ew signi ican causal ela ionships. Speci ically, a ela ionship be ween
in la ion ola ili y and ou pu g ow h was iden i ied in only wo o he en coun ies.
Cua esma and Silgone (2014) examined he impac o in la ion on g ow h o a panel o 14
Eu opean Union coun ies, speci ically om 1960 o 1999, in he yea s p eceding mone a y
uni ica ion. Thei esul s alida ed he hypo hesis ha he ela ionship be ween in la ion
and g ow h is posi i e o e y low in la ion, insigni ican he ea e , and nega i e o high
wo digi in la ion. Mo e ecen ly, Ži ko e al. (2020) disco e ed ha in la ion in eigh
Cen al and Eas e n Eu opean coun ies has an indi ec impac on g oss domes ic p oduc
(GDP) g ow h ia in la ion unce ain y.
Economies 2025,13, 31 5 o 18
3. Me hodology and Da a Se
3.1. Linea Speci ica ion
The g ow h eg ession equa ion wi h coun y ixed e ec s and yea dummies is
as ollows:
Gj, =β1×Yj, +β2×Zj, +β3×Vj, +β4×Xj, +δj+γ +εj, (1)
whe e Y
j,
is a ec o o a iables ha always appea in he eg essions based on he
s anda d g ow h li e a u e (Le ine & Renel ,1992;Le ine & Ze os,1993;Ba o,1991,1996;
Sala-I-Ma in,1997a,1997b;Reinha & Rogo ,2010): (i) ade openness, measu ed as he
a io o impo s plus expo s o g oss domes ic p oduc (XM); (ii) in es men , measu ed as
he a io o g oss ixed capi al o ma ion o g oss domes ic p oduc (In ); and (iii) public
deb o g oss domes ic p oduc (Deb ) as a iscal policy indica o .
Fu he mo e, Zj, is he i s a iable o in e es , he in la ion a e, measu ed by he
annual a e o change in he Ha monized Index O Consume P ices (HICP); and Vj, is he
second a iable o in e es and in la ion a e ola ili y. In la ion a e ola ili y is measu ed
in wo ways. Fi s , i is measu ed as he mo ing a e ages o he s anda d de ia ion o
yea -on-yea in la ion a es o e h ee-yea pe iods (HICP_V) (Ha e ,1986;Da is & Kanago,
2000;Blancha d & Simon,2001). To cap u e he ex en o possible sho - e m luc ua ions in
in la ion, an al e na i e measu e is also conside ed: he mo ing a e age o he s anda d
de ia ion o mon hly in a-yea in la ion (HICP_V_al ) (Judson & O phanides,1999)4.
In addi ion, X
j,
ep esen s a ec o ha includes one addi ional con ol a iable
selec ed om a pool o N a iables, which a e also conside ed in he g ow h li e a u e.
The pool consis s o he ollowing a iables: (i) mone a y condi ions (King & Wa son,
1996;A es is & Deme iades,1997) p oxied by long- e m in e es a es and speci ically he
a e age annual yield o 10-yea go e nmen bonds (LTIR); (ii) c edi expansion (King &
Le ine,1993;De G ego io & Guido i,1995;Sala-I-Ma in,1997a,1997b) (C edi ) p oxied
by he o al c edi o he p i a e non- inancial sec o as an annual a e o change; (iii) he
size o he go e nmen (Ba o,1996,2003;Bu dekin e al.,2004) measu ed by he o al
expendi u es o he gene al go e nmen as a pe cen age o g oss domes ic p oduc (GG);
(i ) expendi u es on esea ch and de elopmen ac i i ies o bo h he p i a e and public
sec o s as a sha e o g oss domes ic p oduc (R&D) (Zacha iadis,2004;Pessoa,2010); ( ) a
measu e o educa ion (Ba o,1991,1996;Bils & Klenow,2000), which is he uppe seconda y
and pos -seconda y non- e ia y educa ion as a pe cen age o o al popula ion, om 15 o
64 yea s (EDU); and ( i) an index measu ing he quali y o ins i u ions (Hall & Jones,1999;
Ba o,1996,2003;Rod ik e al.,2004) (Ins i u ions), which is he sum o he sco es o he six
go e nance indica o s o he Wo ld Bank.
I should be no ed ha he choice o con ol is guided by speci ic conside a ions. The
pu pose he e is no o p esen an exhaus i e accoun o he de e minan s o g ow h, bu
a he o isola e he e ec s o in la ion and in la ion ola ili y on economic g ow h. The
adop ion o a pa simonious speci ica ion ha accoun s o unobse able he e ogenei y may
be su icien o sa is ac o ily add ess he cen al esea ch ques ion.
The dependen a iable, G
j,
, is he annual a e o change (pe cen age) in eal g oss
domes ic p oduc (GDP) pe capi a.
δi
a e coun y ixed e ec s ha accoun o c oss-
sec ional unobse ed he e ogenei y,
γ
a e ime ixed e ec s
5
o cap u e agg ega e ime
shocks, and εi, is he idiosync a ic e o e m.
The esea ch co e s he pe iod om 2000 o 2023 using annual da a wi h unbalanced
panels. The da a se is p ima ily sou ced om he EUROSTAT da abase, wi h he excep ion
o he c edi expansion a iable (C edi ), ob ained om he Fede al Rese e Bank o Sain
Economies 2025,13, 31 6 o 18
Louis, and he quali y o ins i u ions a iable (Ins i u ions), sou ced om he Wo ld Bank’s
Wo ldwide Go e nance Indica o s (see Table A1 in Appendix A).
3.2. Non-Linea Speci ica ions
To cap u e he po en ial non-linea i ies be ween he ela ionship o in la ion, in la ion
ola ili y, and g ow h, wo al e na i e speci ica ions a e employed. Fi s , ollowing Pollin
and Zhu (2006), a squa ed e m o he in la ion a e is in oduced in he model (Z2j, ).
Gj, =β1×Yj, +β2×Zj, +β3×Z Squa edj, +β4×Vj, +β5×Xj, +δj+γ +εj, (2)
In oducing non-linea i y in o he model by including he squa ed in la ion a e
allowed he eg ession equa ion o be es ima ed as a second-deg ee polynomial. This
app oach cap u es changes in slopes ha a e dependen on a ia ions in he independen
a iable. Consequen ly, he slope o he es ima ing equa ion can a y in esponse o
luc ua ions in he in la ion a e, acili a ing he iden i ica ion o u ning poin s in he
ela ionship be ween he in la ion a e and economic g ow h.
Second, he in e ac ion be ween he in la ion a e and in la ion ola ili y is examined
by modi ying he baseline model by in oducing he in e ac ion e m (β4×Zj, ×Vj, .
Gj, =β1×Yj, +β2×Zj, +β3×Vj, +β4×Zj, ×Vj, +β5×Xj, +δj+γ +εj, (3)
The a ionale o including he in e ac ion e m is ha indi idually ela i ely high
in la ion and in la ion ola ili y may no signi ican ly a ec eal ou pu . Howe e , when
combined, in la ion and in la ion ola ili y may inc ease he impac on he economy. A
posi i e (nega i e) and s a is ically signi ican coe icien
β4
indica es ha he combina ion
o in la ion a e and in la ion ola ili y ampli ies (dampens) he e ec o in la ion and
in la ion ola ili y on economic g ow h.
4. Resul s
Table 1p o ides he p elimina y esul s conce ning he ela ionship be ween in la ion,
in la ion ola ili y, and economic g ow h. Conce ning he impac o he in la ion a e on
g oss domes ic p oduc (GDP) g ow h, no s a is ically signi ican indings we e obse ed.
Simila ly, he e is no e idence o a signi ican ela ionship be ween in la ion ola ili y and
g ow h ac oss he a ious speci ica ions. No ably, in only 1 ou o 14 cases, when c edi
g ow h is in oduced as an addi ional con ol a iable, he ola ili y o in la ion (measu ed
as he s anda d de ia ion o yea -on-yea in la ion a es o e a h ee-yea pe iod, –HICP_V)
is ound o be nega i ely and signi ican ly (a he 10% signi icance le el) associa ed wi h
g oss domes ic p oduc g ow h in Eu opean economies.
While hese linea speci ica ions may no be heo e ically he mos p e e ed, hey
demons a e he isola ed e ec s o in la ion a e, in la ion ola ili y, and o he con ol
a iables on g ow h be o e add essing non-linea i y issues. Addi ionally, con ol a iables
such as in es men s and ade openness, which a e s anda d in he g ow h li e a u e, a e
consis en ly ound o ha e a posi i e and s a is ically signi ican e ec on g oss domes ic
p oduc g ow h. In e es ingly, he deb - o-GDP a io is also posi i ely associa ed wi h
g oss domes ic p oduc g ow h, sugges ing ha du ing he pe iod 2000–2023, g ow h coin-
cided wi h public deb accumula ion and did no hinde EU economies om expanding.
Rega ding he emaining con ol a iables, long- e m in e es a es (LTIRs) and gene al
go e nmen expendi u es (GG) we e bo h nega i ely associa ed wi h g oss domes ic p od-
uc g ow h. In con as , he le el o educa ion (EDU) was ound o be posi i ely ela ed o
g oss domes ic p oduc g ow h.
Economies 2025,13, 31 7 o 18
Table 1. Baseline model esul s.
Dependen :
GDP_C (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14)
Cons an −3.903 * −3.668 0.835 0.973 −4.811 * −4.971 * 7.63 *** 8.36 −4.755 * −4.506 * −
11.137 ***
−
10.998 ***
−3.328 −3.15
(1.971) (2.175) (1.85) (1.86) (2.582) (2.817) (2.216) (2.322) (2.443) (2.587) (2.586) (2.773) (2.024) (2.193)
HICP −0.1 −0.139 −0. 098 −0.137 −0.116 −0.137 −0.097 −0.116 −0.108 −0.153 −0.071 −0.099 −0.097 −0.136
(0.084) (0.104) (0.093) (0.119) (0.091) (0.105) (0.079) (0.093) (0.09) (0.107) (0.084) (0.098) (0.083) (0.102)
HICP_V −0.333 −0. 338 −0.548 * −0.259 −0.358 −0.306 −0.336
(0.255) (0.245) (0.269) (0.224) (0.259) (0.248) (0.083)
HICP_V_al −0.934 −0.233 −0.781 −0.976 −0.901 −1.063 −0.9348
(0.828) (0.729) (0.926) (0.764) (0.80) (0.711) (0.821)
In 0.216 *** 0.227 *** 0.195 *** 0.200 *** 0.225 ** 0.23 ** 0.18 ** 0.186 ** 0.219 ** 0.231 ** 0.206 *** 0.215 *** 0.216 *** 0.226 **
(0.065) (0.072) (0.062) (0.066) (0.089) (0.092) (0.071) (0.01) (0.08) (0.086) (0.064) (0.07) (0.065) (0.072)
XM 0.032 ** 0.029 ** 0.021 * 0.019 * 0.034 ** 0.033 ** 0.021 ** 0.018 * 0.033 ** 0.03 ** 0.035 *** 0.032 *** 0.032 ** 0.03 **
(0.012) (0.012) (0.011) (0.011) (0.016) (0.016) (0.01) (0.010) (0.012) (0.011) (0.01) (0.009) (0.012) (0.012)
Deb 0.022 * 0.019 * 0.037 *** 0. 035 *** 0.023 ** 0.02 ** 0.040 *** 0.038 *** 0.023 * 0.019 0.015 0.013 0.021 * 0.018 *
(0.012) (0.01) (0.012) (0.011) (0.01) (0.009) (0.011) (0.01) (0.013) (0.011) (0.012) (0.011) (0.011) (0.01)
LTIRs −0.553 *** −0.588 ***
(0.187) (0.093)
C edi 0.034 0.033
(0.022) (0.016)
GG −0.239 *** −0.248 ***
(0.042) (0.046)
R&D 0.677 0.604
(0.792) (0.791)
Edu 0.158 *** 0.161 ***
(0.039) (0.041)
Ins i u ions 0.09 −0.082
(0.156) (0.147)
Obse a ions 643 643 627 627 541 541 643 643 632 632 637 637 643 643
Coun ies 27 27 27 27 24 24 27 27 27 27 27 27 27 27
R-squa ed 0.613 0.610 0.653 0.650 0.629 0.621 0.639 0.639 0.621 0.617 0.633 0.631 0.614 0.610
Coun y FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Yea FE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
No e: This able p esen s he es ima ion esul s o he baseline model desc ibed in Equa ion (1). Robus s anda d e o s a e epo ed in he pa en heses. ***, **, and * deno e s a is ical
signi icance a he 1, 5, and 10% le els, espec i ely.
Economies 2025,13, 31 8 o 18
Table 2p esen s he esul s o he non-linea models (Equa ions (2) and (3)). Gi en
ha one o he p ima y objec i es o his s udy is o cen e on he Eu opean Cen al Bank’s
policy ega ding in la ion and conside ing ha long- e m in e es a es we e ound o be
signi ican in he linea speci ica ions, we exclusi ely included his a iable as an addi ional
con ol a iable, alongside he o he h ee s anda d con ol a iables (in es men s, ade
openness, and public deb o g oss domes ic p oduc a io)
6
. The in la ion a e emains a
s a is ically insigni ican de e minan o g ow h e en when i s quad a ic e m is in oduced
in o he model. The same holds ue o he wo al e na i e in la ion ola ili y a iables.
When explo ing he po en ial in e ac ion be ween in la ion and in la ion ola ili y in he
i s case, no signi ican di e ence was obse ed. In e es ingly, when del ing in o he
in e ac ion be ween in la ion and in a-yea in la ion ola ili y, bo h a iables we e no
ound o be signi ican ly associa ed wi h g ow h.
Table 2. Non-linea model esul s.
Dependen : GDP_C (1) (2) (3) (4)
Cons an 0.591 0.513 0.571 −0.455
(1.909) (1.959) (1.821) (1.922)
HICP −0.019 −0.019 0.017 0.022
(0.154) (0.166) (0.106) (0.167)
HICPˆ2 −0.006 −0.011
(0.007) (0.008)
HICP_V −0.293 −0.175
(0.246) (0.252)
HICP_V_al −0.231 0.749
(0.717) (0.79)
HICP* HICP_V −0.026 **
(0.011)
HICP* HICP_V_al −0.214 **
(0.255)
In 0.194 *** 0.196 *** 0.186 *** 0.196 ***
(0.061) (0.062) (0.059) (0.06)
XM 0.021 * 0.02 * 0.021 * 0.020 *
(0.011) (0.011) (0.012) (0.011)
Deb 0.038 *** 0.037 *** 0.038 *** 0.035 ***
(0.012) (0.012) (0.012) (0.011)
LTIRs −0.555 *** −0.584 *** −0.572 *** −0.605 ***
(0.077) (0.093) (0.082) (0.093)
Obse a ions 627 627 627 627
Coun ies 27 27 27 27
R-squa ed 0.654 0.651 0.655 0.653
Coun y FE Yes Yes Yes Yes
Yea FE Yes Yes Yes Yes
No e: This able p esen s he es ima ion esul s o he non-linea models desc ibed in Equa ions (2) and (3).
Robus s anda d e o s a e epo ed in he pa en heses. ***, **, and * deno e s a is ical signi icance a he 1, 5, and
10% le els, espec i ely.
O e all, he esul s om bo h linea and non-linea speci ica ions did no succeed
in iden i ying a obus nega i e ela ionship be ween in la ion o in la ion ola ili y and
economic g ow h o EU economies du ing he pe iod 2000–2023.
Economies 2025,13, 31 15 o 18
Table A2. Co ela ion ma ix.
Va iables (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15)
(1) GDP_C 1.000
(2) HICP 0.159 * 1.000
(3) HICP_V −0.022 0.675 * 1.000
(4) HICP_V_al −0.135 * 0.195 * 0.203 * 1.000
(5) Deb −0.247 * −0.216 * −0.129 * 0.365 * 1.000
(6) In 0.244 * 0.209 * 0.030 −0.221 * −0.471 * 1.000
(7) XM 0.077 −0.014 0.042 0.273 * −0.273 * −0.037 1.000
(8) LTIRs −0.118 * 0.228 * 0.180 * 0.091 * 0.050 −0.029 −0.231 * 1.000
(9) C edi 0.178 * 0.108 * −0.116 * −0.164 * −0.234 * 0.237 * −0.014 0.160 * 1.000
(10) GG −0.426 * −0.182 * −0.140 * −0.012 0.521 * −0.303 * −0.339 * −0.010 −0.138 * 1.000
(11) R&D −0.238 * −0.174 * −0.186 * −0.205 * 0.102 * −0.028 −0.155 * −0.380 * −0.086 * 0.607 * 1.000
(12) Edu 0.191 * 0.163 * 0.179 * −0.413 * −0.349 * 0.213 * −0.141 * 0.087 * 0.057 −0.080 * −0.068 1.000
(13) Ins i u ions −0.178 * −0.255 * −0.252 * −0.099 * −0.087 * −0.001 0.234 * −0.367 * 0.065 0.254 * 0.663 * −0.301 * 1.000
(14) Lpop −0.101 * 0.006 −0.066 −0.226 * 0.376 * −0.066 −0.686 * 0.036 −0.037 0.347 * 0.266 * 0.085 * −0.104 * 1.000
(15) Go _chan −0.011 0.005 0.052 −0.074 −0.009 0.058 −0.097 * 0.071 −0.042 0.043 −0.034 0.103 * −0.086 * 0.079 1.000
No e: * deno es s a is ical signi icance a maximum le el o signi icance o 5%.
Economies 2025,13, 31 16 o 18
Table A3. Va iance in la ion ac o .
VIF 1/VIF
R&D 3.69 0.271
Deb 3.406 0.294
GG 2.874 0.348
Ins i u ions 2.817 0.355
XM 2.666 0.375
Lpop 2.666 0.375
HICP_V_al 2.108 0.474
HICP 1.858 0.538
LTIRs 1.694 0.59
In 1.683 0.594
Edu 1.654 0.605
HICP_V 1.522 0.657
C edi 1.225 0.816
Go _chan 1.041 0.96
Mean VIF 2.208
No e: This able shows he Va iance In la ion Fac o (VIF) alues o he p edic o a iables. The VIF alues
measu e he ex en o mul icollinea i y among he p edic o a iables in he eg ession model. A VIF alue
g ea e han 10 ypically indica es high mul icollinea i y, which can a ec he s abili y and in e p e a ion o he
eg ession coe icien s. In ou analysis, all VIF alues a e below 10, wi h a mean VIF o 2.21, indica ing no se ious
mul icollinea i y issues. The 1/VIF alues ( ole ance alues) a e he ecip ocal o he VIF alues. In ou esul s,
he ole ance alues a e all abo e 0.1, u he con i ming ha mul icollinea i y is no a signi ican conce n in
ou models. O e all, hese esul s sugges ha he p edic o a iables a e su icien ly independen o each o he ,
allowing o he eliable es ima ion o he eg ession coe icien s and alid in e p e a ion o he model.
No es
1See o ins ance Phillips (1962), Sid auski (1967), Thi lwall and Ba on (1971), and Do nbusch and F enkel (1973).
2
The sample used in his s udy has only one obse a ion o in la ion abo e 40% annually ou o 643 obse a ions. In his manne ,
he conce n aised by B uno and Eas e ly (1998), sugges ing ha he nega i e co ela ion be ween in la ion and economic g ow h
is a ibu ed o hype in la ion episodes, is o e come.
3
Ou sample comp ises all EU economies, ega dless o whe he hey ha e adop ed he eu o. The esea ch ope a es unde
he assump ion ha he Eu opean Cen al Bank’s (ECB’s) mone a y policy signi ican ly in luences EU coun ies ha do no
pa icipa e in he Economic and Mone a y Union (EMU). Howe e , he esul s a e also con olled speci ically o EMU coun ies.
4
The inclusion o bo h he in la ion a e and in la ion ola ili y in he same eg ession may aise conce ns abou po en ial
mul icollinea i y p oblems. Howe e , as shown in Tables A2 and A3, he co ela ion be ween he a iables is qui e low, indica ing
ha a se ious mul icollinea i y p oblem is no p esen . Addi ionally, sepa a ed eg essions we e un one wi h in la ion and
ano he one wi h in la ion ola ili y ins ead o pu ing hese wo a iables in a single eg ession. Due o space conside a ions,
hese esul s a e no p esen ed; howe e , hey a e a ailable upon eques .
5Robus s anda d e o s a e employed o add ess any po en ial he e oskedas ici y and au oco ela ion in he esiduals.
6
The addi ional con ol a iables we e also examined ollowing he me hodology o linea speci ica ions. The esul s emained
consis en e en when he supplemen a y con ol a iables we e in oduced o he non-linea models. Due o space conside a ions,
hese esul s a e no p esen ed; howe e , hey a e a ailable upon eques .
7
The s udy employs he dynamic GMM speci ica ion and he LSDVC es ima o o a oid he Nickell bias (Nickell,1981) ha may
a ise when unning a dynamic ixed e ec s panel eg ession, especially in his case whe e he numbe o c oss-sec ions is la ge
han he ime dimension. Including a lagged dependen a iable in a panel amewo k can esul in biased and inconsis en
es ima es due o he au oco ela ion in oduced by i s co ela ion wi h he unobse ed he e ogenei y componen .
8
While he indi ec nega i e impac o in la ion is also no p o ound, as e idenced by Nakamu a e al. (2018), who ound li le
e idence ha he G ea In la ion o he la e 1970s and ea ly 1980s led o a subs an ial inc ease in p ice dispe sion, which is
conside ed one o he majo cos s o in la ion.
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