Inflation and long-run growth, further empirical evidence

This paper uses a Solow model augmented by the inclusion of human capital as first proposed by Mankiw, Romer and Weil (1992). This augmented Solow model is further extended by formally modeling inflation in the production function. The expression found that includes inflation as a right hand side variable is estimated using OLS. This study then uses this equation and three different samples of countries to evaluate the effect of inflation on long run economic growth for the period of time from 1960 to 1990.;This study indeed finds the negative correlation found in previous cross-country studies, but this significant negative relationship relies on a few extreme observations. When an objective selection criteria is used to determine the sample of countries, that negative effect disappear. This result is robust to alternative specifications such as logarithmic or quadratic and to the inclusion of additional control variables.;These findings are tested using an alternative explanatory variable: the rate of growth of Reserve Money Supply. The results using this alternative exogenous variable are robust, they suggest that the negative relationship found between inflation and GDP growth is fragile. The significant negative effect of inflation on growth is verified only if we use a large non-screened sample. However when a base sample objectively selected is used, that significance vanishes.