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Does The Magnitude Of The Effect Of Inflation Uncertainty On Output Growth Depend On The Level Of Inflation?

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  • KUANG-LIANG CHANG
  • CHI-WEI HE
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    Abstract

    A bivariate Markov regime switching model is employed to verify whether the relationship between inflation and inflation uncertainty, or the negative effects of inflation and inflation uncertainty on output growth, vary with the level of inflation. Inflation and inflation uncertainty are positively correlated in the high-inflation regime. In contrast, in the low-inflation regime, the direct effect of inflation on output growth is insignificant, but the indirect negative effect on growth via inflation uncertainty is highly significant. The negative influence in a high-inflation regime is 2.664 times greater than that in a low-inflation regime. Copyright � 2010 The Authors. Journal compilation � 2010 Blackwell Publishing Ltd and The University of Manchester.

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    Bibliographic Info

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

    Volume (Year): 78 (2010)
    Issue (Month): 2 (03)
    Pages: 126-148

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    Handle: RePEc:bla:manchs:v:78:y:2010:i:2:p:126-148

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    Cited by:
    1. Raghbendra Jha & Tu Dang, 2011. "Inflation variability and the relationship between inflation and growth," ASARC Working Papers 2011-08, The Australian National University, Australia South Asia Research Centre.
    2. Cheikh Tidiane Ndiaye & Mamadou Abdoulaye Konte, 2012. "Incertitude de l'inflation et croissance économique : le cas de l'UEMOA," Working Papers halshs-00828156, HAL.
    3. Chang, Kuang-Liang, 2012. "The impacts of regime-switching structures and fat-tailed characteristics on the relationship between inflation and inflation uncertainty," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 523-536.

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