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Inflation and inflation uncertainty in the United Kingdom, evidence from GARCH modelling

  • Kontonikas, A.

This paper examines the relationship between inflation-uncertainty and the impact of inflation targeting using British data over the period 1972-2002. Uncertainty is proxied using the estimated conditional volatility from symmetric, asymmetric, and component GARCH-M models of inflation. The results indicate a positive relationship between past inflation and current uncertainty. We control for the indirect effect of lower average inflation throughout the last decade of inflation targeting and find that the adoption of an explicit target eliminates inflation persistence and reduces long-run uncertainty. Monetary authorities of implicit targeting countries should consider the extra benefits associated with formal targets.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 21 (2004)
Issue (Month): 3 (May)
Pages: 525-543

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Handle: RePEc:eee:ecmode:v:21:y:2004:i:3:p:525-543
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  1. Stephen Cecchetti & Michael Ehrmann, 2000. "Does Inflation Targeting Increase Output volatility? An International Comparison of Policy Maker's Preferences and Outcomes," Working Papers Central Bank of Chile 69, Central Bank of Chile.
  2. Stilianos Fountas & Menelaos Karanasos & Marika Karanassou, 2000. "A GARCH Model of Inflation and Inflation Uncertainty with Simultaneous Feedback," Working Papers 0047, National University of Ireland Galway, Department of Economics, revised 2000.
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