1. Lena Malesevic Teaching assistant at the Faculty of Economics Split, Croatia PhD student at Staffordshire University, UK Investigating non-linearities in the inflation-growth trade-off in transition countries Dubrovnik, 27.6.2007

2. Theory Akerlof et al. (2000) Palley (2003) Impact on growth Empirical work Khan and Senhadji (2000) - the threshold is estimated to be at 1-3 percent for industrial countries and 7-11 percent for developing countries.

3. The model(s) Our sample consists of 8 transition countries (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia) and 13 years (1991-2003), i.e. 104 observations per each variable. (1) (2) (3) (4)

5. Dependent variable: GDP per capita growth Static panel (1) Static panel (2) Dynamic panel (1) Dynamic panel (2) GDP growth (lag 1) -0.0520.126 GDP growth (lag 2) -0.242*-0.281* GDP growth (lag 3) -0.130* GDP gap (USA) 0.0364-0.326-0.814*-0.486 Investment/GDP 0.358*0.299*0.317*0.373* Govt. expenditure/GDP -0.157*-0.124-0.036-0.034 Population growth -0.680**-0.812*-1.225*-1.819* Life expectancy -1.618*-1.997*-0.624-1.101* Secondary school enrolment 0.05930.03380.0700.0298 (Exports + imports)/GDP -0.0167-0.0060.054**0.029*** Transition index -0.01470.4113.064*3.703** War dummy -0.206-0.2400.3140.126 Inflation -0.015* -0.065* Ln (inflation) -1.456* -0.836* Squared inflation 5.31e-06 -0.052 *, ** and *** denote 1, 5 and 10 percent level of significance, respectively. Robust standard errors were used and year dummies included.

6. D18.176*D62.369**D111.938D16-1.500D21-3.672* D26.114*D73.047*D121.537D17-1.500D22-3.672* D36.464*D82.612*D130.513D18-1.500D23-3.689* D44.396*D91.858D14-0.244D19-2.594D24-3.538** D53.336*D101.688D15-0.706D20-2.920**D25-3.538** D12.647D60.675D111.463**D16-0.175D21-1.515 D21.542*D71.058**D121.816**D17-0.175D22-1.515 D32.137**D81.478*D131.803**D18-0.175D23-0.933 D41.669D91.473*D140.609D19-1.526D240.457 D50.323D101.295**D150.769D20-1.879D25 0.457 The coefficient (  2 ) on the dummy variable, without year dummies, dynamic panel The coefficient (  2 ) on the dummy variable, without year dummies, static panel (3) *, ** and *** denote 1, 5 and 10 percent level of significance, respectively. Robust standard errors were used and year dummies included.

7. ** R2R2 ** R2R2 ** R2R2 ** R2R2 10.568560.6055110.6289160.6405 20.574070.6113120.6333170.6410 30.585780.6162130.6364180.6413 40.594290.6206140.6385190.6411 50.6006100.6240150.6397200.6404 R 2 for different values of threshold inflation (  *), without year dummies, static panel (4)

8. ** chi2 ** ** ** 12824.7761223.84111311.2516242.99 22601.3971112.86121375.9817235.43 31965.1481186.0213251.6818229.67 41434.9291188.2614250.5319226.56 51317.81101275.4315249.8220221.54 Wald (chi2) for different values of threshold inflation (  *), without year dummies, dynamic panel

9. Conclusion Static vs. dynamic model; Non-linearities; Placement of the kink?