Is the relationship between ination and its uncertainty linear?

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Is the relationship between ination and its uncertainty linear?

Author Info

M. Karanasos () (Brunel university)
S. Schurer (Ruhr Graduate School in Economics)

Abstract

We use parametric power ARCH models of the conditional variance of inflation and monthly data in Germany, the Netherlands and Sweden for the period 1962-2004 to examine the relationship between inflation and inflation uncertainty. In two out of the three countries inflation significantly raises inflation uncertainty as predicted by Friedman. Increased nominal uncertainty affects inflation in all countries but not in the same manner. The results for Germany and the Netherlands support the Cukierman-Meltzer hypothesis. In Sweden uncertainty about the future inflation appears to have a negative impact on inflation

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 463.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:463

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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