Inflation, Inflation Uncertainty, and a Common European Monetary Policy
AbstractThe relationship between inflation and inflation uncertainty is investigated in six European Union countries for the period 1960 to 1999. EGARCH models are used to generate a measure of inflation uncertainty and then Granger methods are employed to test for causality between average inflation and inflation uncertainty. In all the European countries, except Germany, inflation significantly raises inflation uncertainty as predicted by Friedman. However, in all countries except the UK, and possibly Italy, inflation uncertainty does not cause negative output effects implying that a common European monetary policy applied by the ECB might not lead to asymmetric real effects via the inflation uncertainty channel. Less robust evidence is found regarding the direction of the impact of a change in inflation uncertainty on inflation.In Germany, the Netherlands, and to a lesser extent Spain, increased inflation uncertainty lowers inflation while in the UK, Italy, and to a lesser extent France, increased inflation uncertainty raises inflation. These results are generally consistent with the existing rankings of Central Bank Independence.
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Bibliographic InfoPaper provided by National University of Ireland Galway, Department of Economics in its series Working Papers with number 0054.
Date of creation: 2001
Date of revision: 2001
Publication status: Published in Applied Economics Letters Vol.3 No. 7, 1996
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Postal: St. Anthony's College, Newcastle Road, Galway
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Fax: +353-91 524130
Web page: http://economics.nuigalway.ie
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EMU; Exponential GARCH; Inflation Uncertainty;
Other versions of this item:
- S. Fountas & A. Ioannidis & M. Karanasos, 2004. "Inflation, Inflation Uncertainty and a Common European Monetary Policy," Manchester School, University of Manchester, vol. 72(2), pages 221-242, 03.
- Stilianos Fountas & Alexandra Ioannidis & Menelaos Karanasos, 2004. "Inflation, inflation uncertainty, and a common European Monetary Policy," Money Macro and Finance (MMF) Research Group Conference 2003 30, Money Macro and Finance Research Group.
- C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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