Optimum Inflation Rate In Growth Modeling

Hypothesis concerning the optimum rate of inflation is verified in the article. Several theoretical studies dwelled on a similar subject, but very few have addressed the issue of empirical verification of this hypothesis within the framework of growth models.The author presents estimates of optimal inflation rate derived from a single equation econometric model that explains the growth of GNP. The model is based on a modified approach by C. Jones (1995) and uses panel data that cover 15 countries over a period of 1972-2005. The obtained results seem to corroborate the optimum inflation rate hypothesis. The identified relation indicates that the average increase in CPI index amounting to 3% - 4% allows for the maximum long term growth.