Inflation and Output Volatility: Evidence from International Historical Data

Abstract

This study adopts a historical perspective to investigate variations in output volatility within and across world economies. The analysis uses annual data for 37 OECD and non-OECD countries covering the last two centuries. We focus on the relationship between inflation and output volatility. The results of a panel analysis show a positive effect of inflation on output volatility. This finding is consistent with the view that low inflation has a stabilizing effect on output volatility over the long term.