Regime-shifts and post-float inflation dynamics of Australia
AbstractAustralia's inflation rate and inflation uncertainty during the post-float era 1983Q3-2006Q4 have acted as important barometers of Australia's macroeconomic performance. The conceptualization and measurement of the nexus between inflation and inflation uncertainty is subject to complex dynamics. We use the Markov regime switching heteroscedasticity (MRSH) model to capture long-run stochastic trend and short-run noisy components. This allows us to conclude that in post-float Australia the results deviate significantly from the mainstream Friedman paradigm on inflation and its uncertainty. We also critically review the plausibility of rival paradigms e.g. Keynesian-Mundell-Fleming, Friedman-Ball, Cukierman-Meltzer and Holland, explaining this paradoxical behavior. The analyses presented here provide valuable insights to policymakers grappling with the challenge of designing monetary policy to combat the adverse effects of inflation and inflation uncertainty for Australia emerging out of the global financial crisis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 28 (2011)
Issue (Month): 4 (July)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30411
Markov Regime-Switching Heteroscedasticity (MRSH) Inflation uncertainty Friedman paradigm Keynesian-Mundell-Fleming model Intertemporal optimization;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Grier, Kevin B. & Perry, Mark J., 1998. "On inflation and inflation uncertainty in the G7 countries," Journal of International Money and Finance, Elsevier, vol. 17(4), pages 671-689, August.
- Ramaprasad Bhar & Shigeyuki Hamori, 2004. "The link between inflation and inflation uncertainty: Evidence from G7 countries," Empirical Economics, Springer, vol. 29(4), pages 825-853, December.
- Brunner, Allan D & Simon, David P, 1996.
"Excess Returns and Risk at the Long End of the Treasury Market: An EGARCH-M Approach,"
Journal of Financial Research,
Southern Finance Association & Southwestern Finance Association, vol. 19(3), pages 443-57, Fall.
- Allan D. Brunner & David P. Simon, 1995. "Excess returns and risk at the long end of the Treasury market: an EGARCH-M approach," International Finance Discussion Papers 522, Board of Governors of the Federal Reserve System (U.S.).
- Lastrapes, William D, 1989. "Exchange Rate Volatility and U.S. Monetary Policy: An ARCH Application," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(1), pages 66-77, February.
- Andrew Ang & Geert Bekaert, 1998.
"Regime Switches in Interest Rates,"
NBER Working Papers
6508, National Bureau of Economic Research, Inc.
- Robert J. Barro & David B. Gordon, 1983.
"A Positive Theory of Monetary Policy in a Natural-Rate Model,"
NBER Working Papers
0807, National Bureau of Economic Research, Inc.
- Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
- Ball, Laurence, 1992.
"Why does high inflation raise inflation uncertainty?,"
Journal of Monetary Economics,
Elsevier, vol. 29(3), pages 371-388, June.
- Laurence Ball, 1990. "Why Does High Inflation Raise Inflation Uncertainty?," NBER Working Papers 3224, National Bureau of Economic Research, Inc.
- Douglas Rivers & Quang Vuong, 2002. "Model selection tests for nonlinear dynamic models," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 1-39, June.
- Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388.
- Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
- Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
- Bollerslev, Tim, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics,
Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Martin Evans & Paul Wachtel, 1993. "Inflation regimes and the sources of inflation uncertainty," Proceedings, Federal Reserve Bank of Cleveland, pages 475-520.
- Taylor, Stephen J., 1987. "Forecasting the volatility of currency exchange rates," International Journal of Forecasting, Elsevier, vol. 3(1), pages 159-170.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.