The Impact of Inflation Volatility on an Enterprise’s Innovation Strategy

Abstract

The objective of the study was to determine the effect of inflation volatility on an enterprise's innovation strategy. The study showed that increasing inflation leads to a decrease in the stationary level of potential output, as well as to a decrease in the rate of economic growth in the process of transition to a stationary state. A formula is proposed for calculating the total effect of inflation on the level of enterprise output. The negative impact of the inflation rate on the welfare of economic agents was revealed, which is expressed in the fall in their equilibrium consumption level. Higher-income countries have been shown to suffer more from high inflation than poorer countries. All conclusions made in the analysis of the dynamic model of the impact of inflation on potential output are verified based on econometric modelling using methods and models for panel data: models with fixed effects, models with random effects, and a generalized method of moments. Moreover, the obtained empirical results are stable concerning changes in the specification of the equation and estimation methods.