THE INFLATION-GROWTH NEXUS: A DYNAMIC PANEL THRESHOLD ANALYSIS FOR D-8 COUNTRIES

This study investigates the influence of inflation on economic growth in period 1971-2014 for the Organization of Islamic Cooperation (D-8 Countries: Bangladesh, Egypt, Indonesia, Iran, Malaysia, Nigeria, Pakistan and Turkey) through dynamic panel data analysis based on threshold. Results show the existence of a non-linear relationship between economic growth rate and inflation. They indicate that the threshold for the influence of inflation on economic growth is 12.88%, and an inflation rate exceeding this threshold level negatively influences economic growth whereas an inflation rate under this threshold positively influences economic growth. These results show that a high inflation rate will have a considerable influence on economic growth. In this respect, it is crucial to ensure sustainable growth, which plays a significant part in increasing the efficiency of the monetary policies implemented and assuring stability. Hence, while determining the target inflation rate in their attempts to deal with inflation, political and economic decision-makers in these economies should not disregard the concept of threshold within the framework of monetary policy.