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Macroeconomic Uncertainty And Macroeconomic Performance: Are They Related?

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  • DON BREDIN
  • STILIANOS FOUNTAS

Abstract

We use a very general bivariate generalized autoregressive conditional heteroskedasticity-in-mean model and G7 monthly data covering the 1957-2003 period to test for the impact of real and nominal macroeconomic uncertainty on inflation and output growth. Our evidence supports a number of important conclusions. First, in most countries output growth uncertainty is a positive determinant of the output growth rate. Second, there is mixed evidence regarding the effect of inflation uncertainty on inflation and output growth. Hence, contrary to popular belief, uncertainty about the inflation rate is not necessarily detrimental to economic growth but in some cases it may also enhance growth. Finally, there is mixed evidence on the effect of output uncertainty on inflation. In sum, our results indicate that macroeconomic uncertainty may even improve macroeconomic performance. Copyright Blackwell Publishing Ltd and The University of Manchester, 2005.

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Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 73 (2005)
Issue (Month): s1 (09)
Pages: 58-76

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Handle: RePEc:bla:manchs:v:73:y:2005:i:s1:p:58-76

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Cited by:
  1. David Cronin & Robert Kelly & Bernard Kennedy, 2011. "Money growth, uncertainty and macroeconomic activity: a multivariate GARCH analysis," Empirica, Springer, Springer, vol. 38(2), pages 155-167, May.
  2. Kuang-Liang Chang & Chi-Wei He, 2010. "Does The Magnitude Of The Effect Of Inflation Uncertainty On Output Growth Depend On The Level Of Inflation?," Manchester School, University of Manchester, University of Manchester, vol. 78(2), pages 126-148, 03.
  3. Kyriakos C. Neanidis & Christos S. Savva, 2006. "The Effects of Uncertainty on Currency Substitution and Inflation: Evidence from Emerging Economies," The School of Economics Discussion Paper Series, Economics, The University of Manchester 0609, Economics, The University of Manchester.
  4. Donal Bredin & Stilianos Fountas, 2007. "Inflation, inflation uncertainty, and Markov regime switching heteroskedasticity: Evidence from European countries," Money Macro and Finance (MMF) Research Group Conference 2006, Money Macro and Finance Research Group 125, Money Macro and Finance Research Group.

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