recent years, many central banks have placed increased emphasis on price stability. Monetary policy—whether expressed in terms of interest rates or growth of monetary aggregates—has been increasingly geared toward the achievement of low and stable inflation. Central bankers and most other observers view price stability as a worthy objective because they think that inflation is costly. Some of these costs involve the average rate of inflation, and others relate to the variability and uncertainty of inflation. But the general idea is that businesses and households are thought to perform poorly when inflation is high and unpredictable. The academic literature contains a lot of theoretical work on the costs of inflation, as reviewed recently by Briault (1995). This analysis provides a presumption that inflation is a bad idea, but the case is not decisive without supporting empirical findings. Although some empirical results (also surveyed by Briault) suggest that inflation is harmful, the evidence is not overwhelming. It is therefore important to carry out additional empirical research on the relation between inflation and economic performance. This article explores this relation in a large sample of countries over the last 30 years.

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Abstract: The authors examine the relative importance of the growth of physical and human capital and the growth of total factor productivity (TFP) using newly organized data on 145 countries that span more than one hundred years for twenty-four of these countries. For all countries, only 3 percent of average output growth per worker is associated with TFP growth. This world average masks interesting variations across countries and regions. Of the nine regions, TFP growth accounts for about twenty percent of average output growth in three regions and between ten and zero percent in the other three regions. In three regions, TFP growth is negative on average. The authors use priors from theories to construct estimates of the relative importance of the variances of aggregate input growth and TFP growth for the variance of output growth across countries. Across all countries, variation in aggregate input growth per worker could account for as much as 35 percent of the variance of the growth of output per worker across countries, and variation in TFP growth could account for as much as 87 percent of that variance. Much of the importance of the variance of TFP growth appears to be associated with negative TFP growth.

While there is broad-based agreement that the double-digit inflation of the 1970s is undesirable, there is much less agreement that very low inflation—price stability—is the appropriate goal for monetary policy. The literature on the welfare benefits of low inflation reflects this diversity of

We study the effects of growth volatility and inflation volatility on average rates of output growth and inflation for postwar U.S. data. Our results suggest that increased growth uncertainty is associated with significantly higher average growth, while higher inflation uncertainty is significantly correlated with lower output growth and lower average inflation. Both inflation and growth display evidence of significant asymmetric response to positive and negative shocks of equal magnitude. Keywords:

This article investigates the relationship between inflation and output, in the data and in standard models. The article reports that empirical cross-country studies generally find a nonlinear, negative relationship between inflation and output, a relationship that standard models cannot come close to reproducing. The article demonstrates that the models ’ problem may be due to their standard narrow assumption that all money is held by the public for making transactions. When the models are adjusted to also assume that banks are required to hold money, the models do a much better job. The article concludes that researchers interested in studying the effects of monetary policy on growth should shift their attention away from printing money and toward the study of banking and financial regulations. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System. For years, scholars have recognized the key role government policies play in the process of development. The recent

This paper -- a product of the Poverty and Human Resources Division, Policy Research Department-- is part of a larger effort in the department to understand the donor and country determinants of aid effectiveness. The study was funded by the Bank's Research Support Budget under the research project "Bank Project Effectiveness and Country Policy Enviromncnt" (RPO 679-49). Copies of this paper are available free from the World Bank, 1818 H Street N-W, Washington, DC 20433. Please contact Sheila Fallon, room N8-030, telephone 202-473-8009, fax 202-522-1123, Internet address sfallon{?worldbank.org. (44 pages) The Policy Research Working Paper Series disseminates the findings o[ work in progress to encourage the exchange of ideas about development sssues, An oblectit,e of the sertes is to get the findings out quickly, even if the presentations are [ess than fully polished. The papers car D, thc names o[ the authors and should be used and cted accordingly. The findings, interpretations, and conclusions are the authors' own and stould m t be attributed to the World Bank, ts Executwe Board of Directors, or any of its member countries

This paper analyzes productive government expenditure in a stochastic AK growth

I estimate the relationship between taxes and economic growth using data from 1970-1999 and the forty-eight continental U.S. states. I find that taxes used to fund general expenditures are associated with significant, negative effects on economic growth. Further, this finding is robust across (i) alternative variable specifications, (ii) alternative estimation procedures, (iii) alternative ways of dividing the data into “five-year ” periods, and (iv) allowing for individual-specific time and state effects. I also provide an explanation for why previous research has had difficulty identifying this “robust” relationship.

The issue of the impact of volatility on economic growth and performance has gained importance in recent years. Various aspects of this issue have received both theoretical and empirical attention. Empirical research has focused primarily on cross-country volatility, thus naturally setting the issue within an international context. Three primary sources of volatility have