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Inflation and inflation uncertainty: A dynamic framework


  • Berument, M. Hakan
  • Yalcin, Yeliz
  • Yildirim, Julide


This paper aims to investigate the direct relationship between inflation and inflation uncertainty by employing a dynamic method for the monthly country–region–place United States data for the time period 1976–2007. While the bulk of previous studies has employed GARCH models in investigating the link between inflation and inflation uncertainty, in this study Stochastic Volatility in Mean models are used to capture the shocks to inflation uncertainty within a dynamic framework. These models allow researchers to assess the dynamic effects of innovations in inflation as well as inflation volatility on inflation and inflation volatility over time, by incorporating the unobserved volatility as an explanatory variable in the mean (inflation) equation. Empirical findings suggest that innovations in inflation volatility increases inflation. This evidence is robust across various definitions of inflation and different sub-periods.

Suggested Citation

  • Berument, M. Hakan & Yalcin, Yeliz & Yildirim, Julide, 2012. "Inflation and inflation uncertainty: A dynamic framework," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(20), pages 4816-4826.
  • Handle: RePEc:eee:phsmap:v:391:y:2012:i:20:p:4816-4826 DOI: 10.1016/j.physa.2012.05.003

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    References listed on IDEAS

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    Cited by:

    1. Dejan Živkov & Jovan Njegic & Marko Pecanac, 2014. "Bidirectional linkage between inflation and inflation uncertainty – the case of Eastern European countries," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 14(1-2), pages 124-139, December.
    2. repec:eee:enepol:v:111:y:2017:i:c:p:179-192 is not listed on IDEAS


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