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The effect of inflation uncertainty on inflation: Stochastic volatility in mean model within a dynamic framework

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Author Info

  • Berument, Hakan
  • Yalcin, Yeliz
  • Yildirim, Julide

Abstract

This paper investigates the effect of inflation uncertainty innovations on inflation over time by considering the monthly United States data for the time period 1976-2006. In order to investigate the effect of inflation uncertainty innovation on inflation, a Stochastic Volatility in Mean model (SVM) has been employed. SVM models are generally used to capture the innovation to inflation uncertainty, which cannot be achieved in the framework of popular deterministic ARCH type of models. Empirical evidence provided here suggests that innovations in inflation volatility increases inflation persistently. This evidence is robust across various definitions of inflation and different sub-periods.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 26 (2009)
Issue (Month): 6 (November)
Pages: 1201-1207

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Handle: RePEc:eee:ecmode:v:26:y:2009:i:6:p:1201-1207

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Inflation Inflation uncertainty Stochastic volatility models;

References

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Citations

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Cited by:
  1. Mumtaz, Haroon & Theodoridis, Konstantinos, 2012. "The international transmission of volatility shocks: an empirical analysis," Bank of England working papers 463, Bank of England.
  2. 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.
  3. Wojciech Charemza & Carlos Diaz Vela & Svetlana Makarova, 2013. "Inflation fan charts, monetary policy and skew normal distribution," Discussion Papers in Economics 13/06, Department of Economics, University of Leicester.

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