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Reexamining the linkages between inflation and output growth: A bivariate ARFIMA-FIGARCH approach

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Mustafa Caglayan
Feng Jiang

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Abstract

In this paper, given recent theoretical developments that inflation can exhibit long memory properties due to the output growth process, we propose a new class of bivariate processes to simultaneously investigate the dual long memory properties in the mean and the conditional variance of inflation and output growth series. We estimate the model using monthly UK data and document the presence of dual long memory properties in both series. Then, using the conditional variances generated from our bivariate model, we employ Granger causality tests to scrutinize the linkages between the means and the volatilities of inflation and output growth.

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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 2006_8.

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Date of creation: Jun 2006
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Handle: RePEc:gla:glaewp:2006_8

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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