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Inflation Volatility: An Asian Perspective

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  • Rizvi, Syed Kumail Abbas
  • Naqvi, Bushra

Abstract

The primary purpose of this study is to model and analyze inflation volatility in ten selected Asian economies. We used quarterly data of inflation from 1987Q1 to 2008Q4 to model inflation volatility as time varying process through different symmetric and asymmetric GARCH specifications. We also proposed to model inflation volatility on the basis of cyclic component of inflation obtained from HP filter, instead of actual inflation when the latter does not fulfill the criterion of stationarity. Through news impact curves we tried to highlight the behavior of inflation volatility in response to lagged inflation shocks, under different GARCH specifications for selected economies. Bivariate granger causality test is also applied to analyze the direction of causality between inflation and different volatility estimates. We get few important results. At first, leverage parameter shows expected sign and is significant for almost all countries suggesting strong asymmetry in inflation volatility. The hyperbolic sign integral shape of news impact curves based on GJR-GARCH is not only consistent with the results of our previous study based on Pakistani data (Rizvi and Naqvi, 2008) but also highlight the importance of inflation stabilization programs particularly because of the subsequent evidences obtained in favor of bidirectional causality running between inflation and inflation volatility. We also found that cyclic component of inflation could be a suitable proxy of inflation for volatility estimation.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19489.

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Date of creation: 01 Aug 2009
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Handle: RePEc:pra:mprapa:19489

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Keywords: Inflation Volatility; Uncertainty; GJR-GARCH; EGARCH; Asymmetry; Asia; Asian;

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