Advanced Search
MyIDEAS: Login to save this paper or follow this series

Macroeconomic Uncertainty and Performance in the European Union and Implications for the objectives of Monetary Policy

Contents:

Author Info

Abstract

We use a very general bivariate GARCH-M model and monthly data on EU countries covering the 1962-2003 period to test for the impact of real (output growth) and nominal (inflation) macroeconomic uncertainty on inflation and output growth. Our evidence supports a number of important conclusions. First, in the majority of countries uncertainty regarding the output growth rate is related to the average growth rate and the effect in several countries is negative. Second, contrary to expectations, inflation uncertainty in several cases improves the output growth performance of an economy implying that the focus of European monetary policy strategy on stabilising inflation rather than output growth may be misplaced. Third, inflation and output uncertainty have a mixed effect on inflation. Our conclusions are based on adopting both a structural and a reduced form bivariate GARCH model. These results imply that macroeconomic uncertainty may even improve macroeconomic performance. Finally, we also and statistically significant evidence of regime switching for both inflation and output growth volatility throughout the sample.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://aphrodite.uom.gr/econwp/pdf/wp0801.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, University of Macedonia in its series Discussion Paper Series with number 2008_01.

as in new window
Length:
Date of creation: Jan 2008
Date of revision: Jan 2008
Handle: RePEc:mcd:mcddps:2008_01

Contact details of provider:
Web page: http://www.uom.gr/index.php?tmima=3

Related research

Keywords: Inflation; Output growth; Macroeconomic uncertanty;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Woodford, Michael, 1990. "Learning to Believe in Sunspots," Econometrica, Econometric Society, Econometric Society, vol. 58(2), pages 277-307, March.
  2. Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series, The World Bank 294, The World Bank.
  3. Keith Blackburn & Alessandra Pelloni, 2005. "Growth, cycles, and stabilization policy," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 262-282, April.
  4. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, Elsevier, vol. 16(2), pages 141-163, September.
  5. Grier, Kevin B. & Tullock, Gordon, 1989. "An empirical analysis of cross-national economic growth, 1951-1980," Journal of Monetary Economics, Elsevier, Elsevier, vol. 24(2), pages 259-276, September.
  6. Coulson, N. Edward & Robins, Russell P., 1985. "Aggregate economic activity and the variance of inflation : Another look," Economics Letters, Elsevier, Elsevier, vol. 17(1-2), pages 71-75.
  7. Elder, John, 2003. "An impulse-response function for a vector autoregression with multivariate GARCH-in-mean," Economics Letters, Elsevier, Elsevier, vol. 79(1), pages 21-26, April.
  8. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 85(5), pages 1138-51, December.
  9. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 987-1007, July.
  10. Hansen, Bruce E, 1992. "The Likelihood Ratio Test under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 7(S), pages S61-82, Suppl. De.
  11. Hamilton, James D. & Susmel, Raul, 1994. "Autoregressive conditional heteroskedasticity and changes in regime," Journal of Econometrics, Elsevier, Elsevier, vol. 64(1-2), pages 307-333.
  12. Caporale, Tony & McKiernan, Barbara, 1996. "The Relationship between Output Variability and Growth: Evidence from Post War UK Data," Scottish Journal of Political Economy, Scottish Economic Society, Scottish Economic Society, vol. 43(2), pages 229-36, May.
  13. Blackburn, Keith & Pelloni, Alessandra, 2004. "On the relationship between growth and volatility," Economics Letters, Elsevier, Elsevier, vol. 83(1), pages 123-127, April.
  14. Stilianos Fountas & Menelaos Karanasos & Alfonso Mendoza, 2004. "Output Variability and Economic Growth: the Japanese Case," Bulletin of Economic Research, Wiley Blackwell, Wiley Blackwell, vol. 56(4), pages 353-363, October.
  15. Oscar Jorda & Kevin Salyer, . "The Response of Term Rates to Monetary Policy Uncertainty," Department of Economics, California Davis - Department of Economics 01-06, California Davis - Department of Economics.
  16. Bernanke, Ben S, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 98(1), pages 85-106, February.
  17. Victor Zarnowitz & Geoffrey H. Moore, 1986. "Major Changes in Cyclical Behavior," NBER Chapters, National Bureau of Economic Research, Inc, in: The American Business Cycle: Continuity and Change, pages 519-582 National Bureau of Economic Research, Inc.
  18. Garey Ramey & Valerie A. Ramey, 1991. "Technology Commitment and the Cost of Economic Fluctuations," NBER Working Papers 3755, National Bureau of Economic Research, Inc.
  19. Blackburn, Keith, 1999. "Can Stabilisation Policy Reduce Long-Run Growth?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(452), pages 67-77, January.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:mcd:mcddps:2008_01. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Theodore Panagiotidis).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.