Importance Under economic theory, the stimulating monetary policy may lead to an output increase in the short run, whereas in the long run, the only consequence is inflation. In turn, the results of empirical studies suggest that high rates of inflation adversely affect economic growth rates in the long run. However, what inflation rates are considered high is still an open question. Objectives The purpose of the paper is to analyze the influence of inflation on the growth rate of GDP per capita in the long run. Methods The study employs the panel data analysis to examine the non-linear nature of inflation on economic growth rates and identify the threshold value of inflation. Results The review of literature enabled to highlight the mechanism of negative impact of inflation on the process of economic growth. By analyzing the data on emerging markets, I show that the increase in general price level of above 6% per year has a negative impact on economic growth rates. ConclusionsandRelevance Creating favorable conditions for sustainable economic growth should include the achievement of low inflation rate (below 6%). A soft monetary policy stimulates output growth only in the short run, while in the long run it may increase inflation and become an additional obstacle to sustainable economic development.
Keywords: inflation, GDP growth rate, costs
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