Inflation is often thought to be an evil distorting economic incentives and retarding economic growth,
і. e. there exists negative relation between inflation and growth. Roubini and Sala-i-Martin [1] shows that
this relation may be misinterpreted. Indeed it is financial repression that both leads to slow growth and
stimulates governments to resort to inflation taxation. This result has an important implication for the
empirical research in development in transition; hence, the decision to reproduce the result in a more
general setup.