Inflation, GDP and Causality for European Countries Athanasios Koulakiotis & Katerina Lyroudi & Nicholas Papasyriopoulos Published online: 29 November 2011 # International Atlantic Economic Society 2011 Abstract This study investigates, through panel univariate GARCH models for 14 European countries the causality between inflation and GDP and finds that inflation causes GDP at the 5% level of significance and GDP cause inflation at the 10% significance level. Thus, there is a bidirectional effect between the above two cases which is significant at the 10% level. Keywords Inflation . GDP . Volatility . Panel GARCH estimates . Panel Causality JEL E20 . O11 Introduction This paper empirically examines the relationship between inflation and GDP for 14 countries (Austria, Belgium, Denmark, Finland, France, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the United Kingdom) spanning the period from 1961 to 2008. The purpose of this paper is to empirically investigate the casual relationship between inflation and GDP and also to observe the level of volatility for the case of inflation using a GARCH (1,1) model. More specifically, our study considered the logarithmic values of inflation and GDP variables based on panel data examination. We used this approach as it was the most known for the empirical examination of the causal relationship between inflation and GDP. Int Adv Econ Res (2012) 18:53–62 DOI 10.1007/s11294-011-9340-1 The authors are indebted to the participants in the 67th International Atlantic Economic Conference held in Rome for comments and discussions. A. Koulakiotis : N. Papasyriopoulos (*) Department of International and European Studies, University of Macedonia, 156 Eganatia str., 54006 Thessaloniki, Greece e-mail: papasur@uom.gr K. Lyroudi Department of Accounting and Finance, University of Macedonia, 156 Egnatia str., 54006 Thessaloniki, Greece