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Inflation, output growth, and nominal and real uncertainty: Empirical evidence for the G7

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  • Fountas, Stilianos
  • Karanasos, Menelaos

Abstract

We use univariate GARCH models of inflation and output growth and monthly data on inflation and output growth in the G7 for the 1960-2000 period to examine all possible causal relationships between inflation, output growth, real, and nominal uncertainty, and hence test for a number of economic theories. We derive a number of important results: First, we find strong evidence that inflation is a negative determinant of output growth. This effect works both directly and indirectly, i.e., via the inflation uncertainty channel. Second, we obtain evidence supporting the Cukierman-Meltzer hypothesis in most countries. In Japan the stabilisation hypothesis seems to hold. Finally, in most countries we find that output growth uncertainty is a positive determinant of the growth rate as predicted by Black (1987).

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 26 (2007)
Issue (Month): 2 (March)
Pages: 229-250

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Handle: RePEc:eee:jimfin:v:26:y:2007:i:2:p:229-250

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Web page: http://www.elsevier.com/locate/inca/30443

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