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The Euro and inflation uncertainty in the European Monetary Union

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Author Info
Caporale, Guglielmo Maria
Kontonikas, Alexandros

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Abstract

This paper adopts a time-varying GARCH framework to estimate short-run and steady-state inflation uncertainty in 12 EMU countries, and then investigates their relationship with inflation. The effects of the Euro introduction in 1999 are examined by utilising a dummy variable. Tests for endogenously determined breaks are also employed. We find a considerable degree of heterogeneity across EMU countries in terms of average inflation, its degree of persistence, and both types of uncertainty, whilst the trend component of inflation is generally decreasing. Various breaks in the relationship between inflation and inflation uncertainty are found, frequently well before the Euro introduction.

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File URL: http://www.sciencedirect.com/science/article/B6V9S-4TNWGPF-1/2/32522d4b49e36d0006a083331379c757
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Publisher Info
Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 28 (2009)
Issue (Month): 6 (October)
Pages: 954-971
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Handle: RePEc:eee:jimfin:v:28:y:2009:i:6:p:954-971

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

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Related research
Keywords: Inflation Inflation uncertainty Inflation persistence Time-varying parameters GARCH models ECB EMU;

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