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Causal relations between inflation and inflation uncertainty—Cross sectional evidence in favour of the Friedman–Ball hypothesis

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  • Hartmann, Matthias
  • Herwartz, Helmut

Abstract

We test for causality between inflation and its associated uncertainty by means of both in-sample and out-of-sample modelling. Our findings indicate that the impact of inflation on inflation uncertainty is more pronounced than the reverse causal effect.

Suggested Citation

  • Hartmann, Matthias & Herwartz, Helmut, 2012. "Causal relations between inflation and inflation uncertainty—Cross sectional evidence in favour of the Friedman–Ball hypothesis," Economics Letters, Elsevier, vol. 115(2), pages 144-147.
    • Handle: RePEc:eee:ecolet:v:115:y:2012:i:2:p:144-147
    DOI: 10.1016/j.econlet.2011.12.036
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    References listed on IDEAS

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    1. Canova, Fabio, 2007. "G-7 Inflation Forecasts: Random Walk, Phillips Curve Or What Else?," Macroeconomic Dynamics, Cambridge University Press, vol. 11(1), pages 1-30, February.
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    3. Matthias Hartmann & Helmut Herwartz, 2009. "Did the introduction of the euro impact on inflation uncertainty? - An empirical assessment," European Economy - Economic Papers 2008 - 2015 396, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    4. Ball, Laurence, 1992. "Why does high inflation raise inflation uncertainty?," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 371-388, June.
    5. Helmut Herwartz, 2010. "A note on model selection in (time series) regression models - general-to-specific or specific-to-general?," Applied Economics Letters, Taylor & Francis Journals, vol. 17(12), pages 1157-1160.
    6. Apergis, Nicholas, 2004. "Inflation, output growth, volatility and causality: evidence from panel data and the G7 countries," Economics Letters, Elsevier, vol. 83(2), pages 185-191, May.
    7. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Inflation uncertainty; Inflation forecasting; Granger causality;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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