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The Euro and Inflation Uncertainty in the European Monetary Union

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Author Info
Guglielmo Maria Caporale ()
Alexandros Kontonikas ()

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Abstract

This paper investigates the relationship between inflation and inflation uncertainty in twelve EMU countries. A time-varying GARCH model is estimated to distinguish between short-run and steady-state inflation uncertainty. The effects of the introduction of the Euro in 1999 are then examined introducing a dummy variable. Overall, it appears that post-1999 steady-state inflation has generally remained stable, steady-state inflation uncertainty and inflation persistence have both increased, and the relationship between inflation and inflation uncertainty has broken down in many countries. When the break dates are determined endogenously, the adjustment is found to have taken place before the introduction of the Euro.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1842.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1842

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Related research
Keywords: inflation; inflation uncertainty; inflation persistence; time-varying parameters; GARCH models; ECB; EMU;

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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References listed on IDEAS
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