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The Relationship between Inflation, output growth, and their Uncertainties: Evidence from selected CEE countries

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  • Mubariz Hasanov

    (Hacettepe University, Department of Economics)

  • Tolga Omay

    (Cankaya University, Department of International Trade Management)

Abstract

In this paper, we examine causal relationships among inflation rate, output growth rate, inflation uncertainty and output uncertainty for ten Central and Eastern European transition countries. For this purpose, we estimate a bivariate GARCH model that includes output growth and inflation rates for each country. Then we use conditional standard deviations of inflation and output to proxy nominal and real uncertainty, respectively, and perform Granger-causality tests. Our results suggest that inflation rate induces uncertainty about both inflation rate and output growth rate, which is detrimental for real economic activity. On the other hand, we find that output growth rate reduces macroeconomic uncertainty. In addition, we also examine and discuss causal relationships among remaining variables.

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File URL: http://www.iktisat.hacettepe.edu.tr/WP/WP-2012-8.pdf
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Bibliographic Info

Paper provided by Hacettepe University, Department of Economics in its series Hacettepe University Department of Economics Working Papers with number 20128.

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Length: 37 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:hac:hacwop:20128

Contact details of provider:
Postal: Hacettepe University, Faculty of Economics and Administrative Sciences, Department of Economics, Ankara, Turkey
Phone: 0090 312 297 8652
Fax: (312) 299 2003
Email:
Web page: http://www.iktisat.hacettepe.edu.tr
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Keywords: Inflation; Output growth; Uncertainty; Granger-Causality Tests; Transition Countries;

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  1. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," NBER Working Papers 7664, National Bureau of Economic Research, Inc.
  2. Logue, Dennis E & Sweeney, Richard James, 1981. "Inflation and Real Growth: Some Empirical Results: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(4), pages 497-501, November.
  3. Evans, Martin, 1991. "Discovering the Link between Inflation Rates and Inflation Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 169-84, May.
  4. Tolga OMAY & Nilay ALUFTEKIN & Ece C. KARADAGLI, 2010. "The Relationship Between Output Growth And Inflation: Evidence From Turkey," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 5(1(11)_Spr), pages 55-63.
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  13. John Thornton, 2007. "The Relationship between Inflation and Inflation Uncertainty in Emerging Market Economies," Southern Economic Journal, Southern Economic Association, vol. 73(4), pages 858–870, April.
  14. 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.
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  16. Ball, Laurence, 1992. "Why does high inflation raise inflation uncertainty?," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 371-388, June.
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Cited by:
  1. Tolga Omay, 2011. "The relationship between inflation, output growth, and their uncertainties: Nonlinear Multivariate GARCH-M evidence," Economics Bulletin, AccessEcon, vol. 31(4), pages 3006-3015.

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