A GARCH Model of Inflation and Inflation Uncertainty with Simultaneous Feedback
AbstractWe examine the relationship between inflation and inflation uncertainty using a GARCH model that allows for simultaneous feedback between the conditional mean and variance of inflation. We also derive a number of theoretical econometric results and illustrate the relevance of these results with an empirical example of the US monthly inflation process. Our results show that there is strong evidence in favour of a positive bi-directional relationship between inflation and inflation uncertainty in agreement with the predictions of economic theory.
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Bibliographic InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 414.
Date of creation: May 2000
Date of revision:
Inflation; Inflation uncertainty; GARCH-M;
Find related papers by JEL classification:
- C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-07-11 (All new papers)
- NEP-ECM-2000-07-11 (Econometrics)
- NEP-ETS-2000-07-11 (Econometric Time Series)
- NEP-MON-2000-07-11 (Monetary Economics)
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