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Inflation and inflation uncertainty: evidence from the Caribbean region

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  • James E. Payne

Abstract

Purpose – The purpose of this paper is to extend the literature on the relationship between inflation and inflation uncertainty by examining three Caribbean countries: the Bahamas, Barbados, and Jamaica. Design/methodology/approach – ARMA-GARCH models are used to estimate inflation uncertainty along with Granger-causality tests to infer the relationship between inflation and inflation uncertainty. Findings – The results reveal that both the Bahamas and Jamaica exhibit a high degree of volatility persistence in response to inflationary shocks, while Barbados has a much lower persistence measure. Granger-causality tests indicate that an increase in inflation has been a positive impact on inflation uncertainty for each country. However, an increase in inflation uncertainty yields a decrease in inflation in the case of Jamaica. In summary, the results for the Bahamas and Barbados support the Friedman-Ball hypothesis, whereas the results for Jamaica support Holland's stabilization-motive hypothesis. Research limitations/implications – Future research on inflation and inflation uncertainty can be extended to incorporate possible regime shifts associated with fiscal and monetary policy. Originality/value – The study fills a void in the literature with respect to the inflation-inflation uncertainty nexus for Caribbean countries. The results of the paper may be useful to policymakers in the formulation of fiscal and monetary policy.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 35 (2008)
Issue (Month): 6 (November)
Pages: 501-511

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Handle: RePEc:eme:jespps:v:35:y:2008:i:6:p:501-511

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Keywords: Caribbean; Inflation; Uncertainty management;

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Cited by:
  1. Bahmani-Oskooee, Mohsen & Harvey, Hanafiah & Hegerty, Scott W., 2014. "Industry trade and exchange-rate fluctuations: Evidence from the U.S. and Chile," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 619-626.
  2. Mohsen Bahmani-Oskooee & Sahar Bahmani, 2014. "Monetary Uncertainty and Demand for Money in Korea," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(3), pages 317-324, March.
  3. Mohsen Bahmani-Oskooee & Rajarshi Mitra, 2009. "The J-Curve at the industry level: evidence from U.S.-India trade," Economics Bulletin, AccessEcon, vol. 29(2), pages 1520-1529.
  4. Bahmani-Oskooee, Mohsen & Bolhassani, Marzieh & Hegerty, Scott W., 2011. "Industry trade between Canada and Mexico: Will a weakening peso help Mexican manufacturing in the long run?," The North American Journal of Economics and Finance, Elsevier, vol. 22(2), pages 89-101, August.
  5. Bahmani-Oskooee, Mohsen & Bolhassani, Marzieh & Hegerty, Scott W., 2010. "The effects of currency fluctuations and trade integration on industry trade between Canada and Mexico," Research in Economics, Elsevier, vol. 64(4), pages 212-223, December.
  6. Mohsen Bahmani-Oskooee & Hanafiah Harvey, 2012. "How responsive are Indonesia's bilateral inpayments and outpayments to real depreciation of Rupiah?," Studies in Economics and Finance, Emerald Group Publishing, vol. 29(2), pages 133-143, June.
  7. Mohsen Bahmani-Oskooee & Ruixin Zhang, 2014. "Is there J-Curve effect in the commodity trade between Korea and rest of the world?," Economic Change and Restructuring, Springer, vol. 47(3), pages 227-250, August.
  8. Bahmani-Oskooee, Mohsen & Xi, Dan, 2012. "Exchange rate volatility and domestic consumption: Evidence from Japan," Economic Systems, Elsevier, vol. 36(2), pages 326-335.
  9. Mohsen Bahmani-Oskooee & Hanafiah Harvey & Scott Hegerty, 2013. "Currency fluctuations and the French–U.S. trade balance: evidence from 118 industries," Empirica, Springer, vol. 40(2), pages 237-257, May.
  10. Bahmani-Oskooee, Mohsen & Harvey, Hanafiah & Hegerty, Scott, 2013. "Currency depreciations and the U.S.–Italian trade balance: Industry-level estimates," Research in Economics, Elsevier, vol. 67(3), pages 215-225.

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