Demand Deficiency and Inflation in the G7 Countries
In this paper, we analyze the relationship between nominal and real GDP growth for G7 countries for the period 1971 – 2018. A visual inspection of the data indicates the presence of a threshold, above which the structure of the relationship between nominal and real GDP growth rates changes from a po...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Econometric Research Association
2021-12-01
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| Series: | International Econometric Review |
| Subjects: | |
| Online Access: | http://www.era.org.tr/makaleler/121021.pdf |
| _version_ | 1797924179607027712 |
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| author | Erdem Başçı Sıdıka Başçı |
| author_facet | Erdem Başçı Sıdıka Başçı |
| author_sort | Erdem Başçı |
| collection | DOAJ |
| description | In this paper, we analyze the relationship between nominal and real GDP growth for G7 countries for the period 1971 – 2018. A visual inspection of the data indicates the presence of a threshold, above which the structure of the relationship between nominal and real GDP growth rates changes from a positive one to a flat one. Moreover, the volatility of real growth is observed to be higher at high rates of nominal GDP growth. We first test for the presence of a two regime non-linearity by using the Sup F test of Andrews (1993). Due to the presence of heteroskedasticity we also apply the Sup MZ test of Ahmed et al. (2017). Both tests operate under an unknown change point and the latter also allows for heteroskedasticity. The results of the tests point to the presence of a ‘demand deficiency ’regime for low nominal demand growth rates and to a ‘harmful inflation ’regime for higher nominal GDP growth rates, these results have strong implications for guiding recent policy discussions on nominal GDP targeting. |
| first_indexed | 2024-04-10T14:57:30Z |
| format | Article |
| id | doaj.art-4f2f95c1ad8648eea5058cb490f109c3 |
| institution | Directory Open Access Journal |
| issn | 1308-8793 1308-8815 |
| language | English |
| last_indexed | 2024-04-10T14:57:30Z |
| publishDate | 2021-12-01 |
| publisher | Econometric Research Association |
| record_format | Article |
| series | International Econometric Review |
| spelling | doaj.art-4f2f95c1ad8648eea5058cb490f109c32023-02-15T16:07:17ZengEconometric Research AssociationInternational Econometric Review1308-87931308-88152021-12-01133597010.33818/ier.1058542Demand Deficiency and Inflation in the G7 CountriesErdem Başçı0Sıdıka Başçı1TED University, Department of Economics, TurkeyAnkara Yıldırım Beyazıt University, Department of Economics, Ankara, TurkeyIn this paper, we analyze the relationship between nominal and real GDP growth for G7 countries for the period 1971 – 2018. A visual inspection of the data indicates the presence of a threshold, above which the structure of the relationship between nominal and real GDP growth rates changes from a positive one to a flat one. Moreover, the volatility of real growth is observed to be higher at high rates of nominal GDP growth. We first test for the presence of a two regime non-linearity by using the Sup F test of Andrews (1993). Due to the presence of heteroskedasticity we also apply the Sup MZ test of Ahmed et al. (2017). Both tests operate under an unknown change point and the latter also allows for heteroskedasticity. The results of the tests point to the presence of a ‘demand deficiency ’regime for low nominal demand growth rates and to a ‘harmful inflation ’regime for higher nominal GDP growth rates, these results have strong implications for guiding recent policy discussions on nominal GDP targeting.http://www.era.org.tr/makaleler/121021.pdfgrowthinflationmacroeconomic policyunknown structural change testsnominal gdp targeting |
| spellingShingle | Erdem Başçı Sıdıka Başçı Demand Deficiency and Inflation in the G7 Countries International Econometric Review growth inflation macroeconomic policy unknown structural change tests nominal gdp targeting |
| title | Demand Deficiency and Inflation in the G7 Countries |
| title_full | Demand Deficiency and Inflation in the G7 Countries |
| title_fullStr | Demand Deficiency and Inflation in the G7 Countries |
| title_full_unstemmed | Demand Deficiency and Inflation in the G7 Countries |
| title_short | Demand Deficiency and Inflation in the G7 Countries |
| title_sort | demand deficiency and inflation in the g7 countries |
| topic | growth inflation macroeconomic policy unknown structural change tests nominal gdp targeting |
| url | http://www.era.org.tr/makaleler/121021.pdf |
| work_keys_str_mv | AT erdembascı demanddeficiencyandinflationintheg7countries AT sıdıkabascı demanddeficiencyandinflationintheg7countries |