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Macroeconomic uncertainty and performance in the European Union

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  • Bredin, Don
  • Fountas, Stilianos

Abstract

We use a very general bivariate GARCH-M model and monthly data on EU countries covering the 1962-2003 period to test for the impact of real (output growth) and nominal (inflation) macroeconomic uncertainty on inflation and output growth. Our evidence supports a number of important conclusions. First, in the majority of countries uncertainty regarding the output growth rate is related to the average growth rate and the effect in several countries is negative. Second, in half of the cases there is no significant relationship between inflation uncertainty and output growth performance. Third, inflation and output uncertainty have a mixed effect on inflation. Nevertheless, considerable evidence for the Cukierman-Meltzer hypothesis is obtained. Our conclusions are based on adopting both a structural and a reduced-form bivariate GARCH model. Finally, we also find statistically significant evidence of regime switching for both inflation and output growth volatility throughout the sample.

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Bibliographic Info

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

Volume (Year): 28 (2009)
Issue (Month): 6 (October)
Pages: 972-986

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Handle: RePEc:eee:jimfin:v:28:y:2009:i:6:p:972-986

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

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Keywords: Inflation Output growth Macroeconomic uncertainty Monetary policy GARCH models;

References

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Citations

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Cited by:
  1. Elena Andreou & Alessandra Pelloni & Marianne Sensier, 2008. "Is Volatility Good for Growth? Evidence from the G7," Centre for Growth and Business Cycle Research Discussion Paper Series 97, Economics, The Univeristy of Manchester.
  2. Don Bredin & Stilianos Fountas, 2011. "US Infl ation and infl ation uncertainty in a historical perspective: The impact of recessions," Working Papers, Geary Institute, University College Dublin 201053, Geary Institute, University College Dublin.
  3. Goulas, Eleftherios & Zervoyianni, Athina, 2013. "Growth, deficits and uncertainty: Theoretical aspects and empirical evidence from a panel of 27 countries," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 53(4), pages 380-392.
  4. Barbara Annicchiarico & Alessandra Pelloni, 2011. "Productivity Growth and Volatility: How Important are Wage and Price Rigidities?," CEIS Research Paper 211, Tor Vergata University, CEIS, revised 26 Sep 2011.
  5. Hartmann, Matthias & Roestel, Jan, 2013. "Inflation, output and uncertainty in the era of inflation targeting – A multi-economy view on causal linkages," Journal of International Money and Finance, Elsevier, Elsevier, vol. 37(C), pages 98-112.
  6. Torsten Schmidt & Lina Zwick, 2013. "Uncertainty and Episodes of Extreme Capital Flows in the Euro Area," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0461, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  7. Kyriakos C. Neanidis & Christos S. Savva, 2010. "Nominal Uncertainty and Inflation: The Role of European Union Membership," Centre for Growth and Business Cycle Research Discussion Paper Series 146, Economics, The Univeristy of Manchester.
  8. Eleftherios Goulas & Athina Zervoyianni, 2013. "Growth, Deficits and Uncertainty: Theoretical Aspects and Empirical Evidence," Working Paper Series, The Rimini Centre for Economic Analysis 53_13, The Rimini Centre for Economic Analysis.

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