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Testing for rate dependence and asymmetry in inflation uncertainty: Evidence from the G7 economies

  • Henry, Olan T.
  • Olekalns, Nilss
  • Suardi, Sandy

The Friedman-Ball hypothesis implies a link between the inflation rate and inflation uncertainty. In this paper we employ a new test for the joint null hypothesis of no dependence effects and no asymmetry in the G7 inflation volatility. The results show that higher inflation rates operate additively via the conditional variance of inflation to induce greater inflation uncertainty in the U.S., U.K. and Canada. In addition, positive inflationary shocks are found to generate greater inflation uncertainty than negative shocks of a similar magnitude in the U.K. and Canada.

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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 94 (2007)
Issue (Month): 3 (March)
Pages: 383-388

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Handle: RePEc:eee:ecolet:v:94:y:2007:i:3:p:383-388
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  9. Davis, George K & Kanago, Bryce E, 2000. "The Level and Uncertainty of Inflation: Results from OECD Forecasts," Economic Inquiry, Western Economic Association International, vol. 38(1), pages 58-72, January.
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