The nonlinear relationship between inflation and economic growth : A dissection of the threshold level between inflation and economic growth in Sweden between 1971-2017.

Abstract: A common belief about inflation and economic growth has developed during recent years. This belief is that a “low” and stable inflation rate favors economic growth. The underlying arguments for this are that a low inflation rate create a beneficial playground for all participants. A playground which will meliorate investments and ensure a stability for consumers which in return will give a favorable environment for the economy to thrive. This paper aims to clarify this relationship between inflation and economic growth in Sweden between the period 1971-2017 and thus investigate the co-integration relation between the two variables. Additional test will be conducted to explore a potential threshold level of inflation. This threshold level is defined as the point where inflation starts to harm growth.