ANALYSIS OF THE EFFECTS OF INFLATION ON ECONOMIC GROWTH IN SERBIA - VECTOR AUTOREGRESSION MODEL

Abstract

An analysis of the relationsbetween inflation and economic growth marked theperiod of the second half of the 20th century. It iswell known that the relationship between inflationand economic growth is one of the crucialrelationships in macroeconomics, making the studyof this phenomenon a matter of interest. A numberof empirical studies carried out since the 70s had aprofound effect on the analysis of the effects ofinflation, and have been intensively researching theeffects of inflation on economic growth. The resultsof the most significant empirical findings havepointed to the negative connotation of the effect ofinflation on economic growth. The final consensusamong economists about the relationship ofinflation and economic growth has yet to bereached. This paper deals with the empiricalanalysis of the effects of inflation on economicgrowth in Serbia. The method of vectorautoregression used to analyze these effects hasprovided the data which indicate a decline inindustrial production of approximately 0.23 %,provided inflation increases by 1 %.Regardless of the small intensity of this effect,it is still negative and statistically significant.

Keywords

• inflation
• economic growth
• negative effects
• model of vector autoregression