Inflation crises, deflation, and growth

Applied Economics, Vol. 33, No. 9, July 2001, pp. 1157-1165.
Inflation crises, deflation, and growth:
further evidence*
Hans-Jürgen Engelbrecht**, Chris Langley
Bruno and Easterly (1998) provide a simple historical description of per capita GDP
growth rates before, during and after periods of high inflation crises. The pattern of
growth shows resurgence in after-crisis growth to above the before-crisis level. The
robustness of this finding is tested against justifiable changes in the data sample used
and against different crisis definitions. The results show that after-crisis growth rates
do not recover to a level above those experienced before-crisis. In contrast to Bruno
and Easterly, the important distinction between open and closed economies is
emphasized. Only in the former case are their results that growth deviations from the
world average after-crisis improve relative to the before-crisis periods confirmed.
Finally, the pattern of growth before, during and after deflationary periods is
analysed. The data reveal a potentially important asymmetry in the correlation
between deflation and growth, and inflation and growth. Low rates of deflation are
associated with a similarly negative per capita GDP growth rate as are very high rates
of inflation.
Running title:
Inflation crises, deflation, and growth
JEL classification:
Inflation, deflation, growth, open economies
* We thank William Easterly for providing helpful information.
**Correspondence address: Department of Applied and International Economics,
College of Business, Massey University, Palmerston North, New Zealand. Tel.: +64 6
350 5968; fax: +64 6 350 5660; e-mail: