Does inflation reduce productivity?
Our article examines the postwar evidence
on the relationship between inflation and productivity
in the U.S., paying particular attention
to two questions that the existing literature
has not resolved. One is whether the negative
correlation documented by Rudebusch and
Wilcox is a long-run phenomenon or simply
reflects cyclical co-movements. The second
question is what assumptions are required to
interpret the correlation as a causal relationship
and conclude that a permanent decrease in
inflation would bring about a permanent increase
in productivity.