The long-run relationship between inflation and output in postwar economies

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We investigate the relationship between inflation and real output in a large sample of postwar economies. Our methodology is to use a structural vector autoregression to estimate the response of the level of real output to permanent inflation shocks separately for each country. We find that a permanent shock to inflation is not associated with a permanent movement in the level of real output for most countries in our sample. The main exceptions are certain low inflation countries, in which permanent inflation shocks permanently increase the level of output. We also find that permanent inflation shocks do not permanently influence real output growth rates in our sample.