Nonlinear Relation between Inflation and Economic Growth: Evidence from China

Abstract

By using the quarterly data of CPI and GDP in China from 1992 to 2011, this paper builds a smooth transition regression (STR) model to study the nonlinear relation between inflation and economic growth. The results show that there exist two-way Granger causality relations between inflation and economic growth, and inflation has significant nonlinear impacts to economic growth.