Inflation uncertainty and economic growth in Euro zone and Non Euro zone countries

Abstract

Friedman’s hypothesis about the relationship of inflation uncertainty and economic growth states that full employment increases the inflation. This increase in the rate of inflation causes an increase in the future inflation uncertainty which decreases the economic growth. This paper examines the impact of inflation and its uncertainty on economic growth and makes the comparison between Eurozone and Non Eurozone countries. There are 38 countries which include eurozone and non eurozone countries during the period 1980 to 2017. Panel regression model is used to explore the causal relationship among these three variables. This study confirms that the uncertainty in inflation has a significant and positive impact on economic development. Inflation is an important variable and it is harmful to economic prospects in the Eurozone and non eurozone countries. It has a significant negative influence on economic efficiency.