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The effects of real and nominal uncertainty on inflation and output growth: some garch-m evidence

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Author Info
Kevin B. Grier (Department of Economics, University of Oklahoma, Norman, OK 73019, USA)
Mark J. Perry (Department of Economics, University of Michigan-Flint, Flint, MI 48502-2186, USA)

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Abstract

In this paper we use GARCH-M methods to test four hypotheses about the effects of real and nominal uncertainty on average inflation and output growth in the United States from 1948 to 1996. We find no evidence that higher inflation uncertainty or higher output growth uncertainty raises the average inflation rate. We also find no support for the idea that more risky output growth is associated with a higher average real growth rate. Our key result is that in a variety of models and sample periods, inflation uncertainty significantly lowers real output growth. Copyright © 2000 John Wiley & Sons, Ltd.

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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 15 (2000)
Issue (Month): 1 ()
Pages: 45-58
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Handle: RePEc:jae:japmet:v:15:y:2000:i:1:p:45-58

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Victor Zarnowitz & Louis A. Lambros, 1987. "Consensus and Uncertainty in Economic Prediction," NBER Working Papers 1171, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Grier, Kevin B. & Perry, Mark J., 1998. "On inflation and inflation uncertainty in the G7 countries," Journal of International Money and Finance, Elsevier, vol. 17(4), pages 671-689, August. [Downloadable!] (restricted)
  3. Grier, Kevin B & Perry, Mark J, 1993. " The Effect of Money Shocks on Interest Rates in the Presence of Conditional Heteroskedasticity," Journal of Finance, American Finance Association, vol. 48(4), pages 1445-55, September. [Downloadable!] (restricted)
  4. Zarnowitz, Victor & Lambros, Louis A, 1987. "Consensus and Uncertainty in Economic Prediction," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 591-621, June. [Downloadable!] (restricted)
  5. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August. [Downloadable!] (restricted)
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  6. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June. [Downloadable!] (restricted)
  7. Robert J. Barro & David B. Gordon, 1984. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Baillie, Richard T & Chung, Ching-Fan & Tieslau, Margie A, 1996. "Analysing Inflation by the Fractionally Integrated ARFIMA-GARCH Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(1), pages 23-40, Jan.-Feb.. [Downloadable!] (restricted)
  9. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September. [Downloadable!] (restricted)
  10. E.K. Berndt & B.H. Hall & R.E. Hall, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 103-116 National Bureau of Economic Research, Inc. [Downloadable!]
  11. Cosimano, Thomas F & Jansen, Dennis W, 1988. "Estimates of the Variance of U.S. Inflation Based upon the ARCH Model: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(3), pages 409-21, August. [Downloadable!] (restricted)
  12. Brunner, Allan D, 1993. "Inflation Regimes and the," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 512-14, August. [Downloadable!] (restricted)
  13. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February. [Downloadable!] (restricted)
  14. Bollerslev, Tim, 1990. "Modelling the Coherence in Short-run Nominal Exchange Rates: A Multivariate Generalized ARCH Model," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 498-505, August. [Downloadable!] (restricted)
  15. Engle, Robert F, 1988. "Estimates of the Variance of U.S. Inflation Based upon the ARCH Model: Reply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(3), pages 422-23, August. [Downloadable!] (restricted)
  16. Grier, Kevin B. & Perry, Mark J., 1996. "Inflation, inflation uncertainty, and relative price dispersion: Evidence from bivariate GARCH-M models," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 391-405, October. [Downloadable!] (restricted)
  17. Ball, Laurence, 1992. "Why does high inflation raise inflation uncertainty?," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 371-388, June. [Downloadable!] (restricted)
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  18. Devereux, Michael, 1989. "A Positive Theory of Inflation and Inflation Variance," Economic Inquiry, Oxford University Press, vol. 27(1), pages 105-16, January.
  19. Holland, A Steven, 1988. "Indexation and the Effect of Inflation Uncertainty on Real GNP," Journal of Business, University of Chicago Press, vol. 61(4), pages 473-84, October. [Downloadable!] (restricted)
  20. John E. Golob, 1993. "Inflation, inflation uncertainty, and relative price variability: a survey," Research Working Paper 93-15, Federal Reserve Bank of Kansas City.
  21. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September. [Downloadable!] (restricted)
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  22. Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-92, June. [Downloadable!] (restricted)
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