Inflation and inflation uncertainty: A dynamic framework
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 391 (2012)
Issue (Month): 20 ()
|Contact details of provider:|| Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Harvey, Andrew & Ruiz, Esther & Shephard, Neil, 1994.
"Multivariate Stochastic Variance Models,"
Review of Economic Studies,
Wiley Blackwell, vol. 61(2), pages 247-64, April.
- Tom Doan, . "RATS programs to estimate multivariate stochastic volatility models," Statistical Software Components RTZ00093, Boston College Department of Economics.
- Francis X. Diebold & Jose A. Lopez, 1995.
"Modeling volatility dynamics,"
9522, Federal Reserve Bank of New York.
- Neil Shephard & Jurgen Doornik & Siem Jan Koopman, 1998.
"Statistical algorithms for models in state space using SsfPack 2.2,"
Economics Series Working Papers
1998-W06, University of Oxford, Department of Economics.
- Siem Jan Koopman & Neil Shephard & Jurgen A. Doornik, 1999. "Statistical algorithms for models in state space using SsfPack 2.2," Econometrics Journal, Royal Economic Society, vol. 2(1), pages 107-160.
- Danielsson, Jon, 1994. "Stochastic volatility in asset prices estimation with simulated maximum likelihood," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 375-400.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
- Melino, Angelo & Turnbull, Stuart M., 1990. "Pricing foreign currency options with stochastic volatility," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 239-265.
- Cukierman Alex, 1992.
"Central Bank Strategy, Credibility, And Independance: Theory And Evidence,"
Journal des Economistes et des Etudes Humaines,
De Gruyter, vol. 3(4), pages 10, December.
- Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, June.
- Sangjoon Kim & Neil Shephard, 1994.
"Stochastic volatility: likelihood inference and comparison with ARCH models,"
3., Economics Group, Nuffield College, University of Oxford.
- Kim, Sangjoon & Shephard, Neil & Chib, Siddhartha, 1998. "Stochastic Volatility: Likelihood Inference and Comparison with ARCH Models," Review of Economic Studies, Wiley Blackwell, vol. 65(3), pages 361-93, July.
- Sangjoon Kim, Neil Shephard & Siddhartha Chib, . "Stochastic volatility: likelihood inference and comparison with ARCH models," Economics Papers W26, revised version of W, Economics Group, Nuffield College, University of Oxford.
- Sangjoon Kim & Neil Shephard & Siddhartha Chib, 1996. "Stochastic Volatility: Likelihood Inference And Comparison With Arch Models," Econometrics 9610002, EconWPA.
- John E. Golob, 1994. "Does inflation uncertainty increase with inflation?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 27-38.
- James H. Stock & Mark W. Watson, 2007. "Erratum to "Why Has U.S. Inflation Become Harder to Forecast?"," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(7), pages 1849-1849, October.
- Pesaran, M. H. & Shin, Y., 1997.
"Generalised Impulse Response Analysis in Linear Multivariate Models,"
Cambridge Working Papers in Economics
9710, Faculty of Economics, University of Cambridge.
- Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
- Ball, Laurence, 1992.
"Why does high inflation raise inflation uncertainty?,"
Journal of Monetary Economics,
Elsevier, vol. 29(3), pages 371-388, June.
- Laurence Ball, 1990. "Why Does High Inflation Raise Inflation Uncertainty?," NBER Working Papers 3224, National Bureau of Economic Research, Inc.
- J. Durbin, 2002. "A simple and efficient simulation smoother for state space time series analysis," Biometrika, Biometrika Trust, vol. 89(3), pages 603-616, August.
- Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
- Brunner, Allan D & Hess, Gregory D, 1993.
"Are Higher Levels of Inflation Less Predictable? A State-Dependent Conditional Heteroscedasticity Approach,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 11(2), pages 187-97, April.
- Allan D. Brunner & Gregory D. Hess, 1990. "Are higher levels of inflation less predictable? A state-dependent conditional heteroskedasticity approach," Finance and Economics Discussion Series 141, Board of Governors of the Federal Reserve System (U.S.).
- Kevin B. Grier & Mark J. Perry, 2000. "The effects of real and nominal uncertainty on inflation and output growth: some garch-m evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(1), pages 45-58.
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Simon M. Potter, 1999.
"Nonlinear impulse response functions,"
65, Federal Reserve Bank of New York.
- Stephen J. Taylor, 1994. "Modeling Stochastic Volatility: A Review And Comparative Study," Mathematical Finance, Wiley Blackwell, vol. 4(2), pages 183-204.
- Pagan, Adrian & Ullah, Aman, 1988. "The Econometric Analysis of Models with Risk Terms," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(2), pages 87-105, April.
- Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
- James H. Stock & Mark W. Watson, 2007.
"Why Has U.S. Inflation Become Harder to Forecast?,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 39(s1), pages 3-33, 02.
- Gallant, A Ronald & Rossi, Peter E & Tauchen, George, 1993. "Nonlinear Dynamic Structures," Econometrica, Econometric Society, vol. 61(4), pages 871-907, July.
- Bera, Anil K & Higgins, Matthew L, 1993. " ARCH Models: Properties, Estimation and Testing," Journal of Economic Surveys, Wiley Blackwell, vol. 7(4), pages 305-66, December.
- Gallant, A. Ronald & Hsieh, David & Tauchen, George, 1997.
"Estimation of stochastic volatility models with diagnostics,"
Journal of Econometrics,
Elsevier, vol. 81(1), pages 159-192, November.
- Gallant, A. Ronald & Hsieh, David & Tauchen, George, 1995. "Estimation of Stochastic Volatility Models with Diagnostics," Working Papers 95-36, Duke University, Department of Economics.
- Ruiz, Esther, 1994. "Quasi-maximum likelihood estimation of stochastic volatility models," Journal of Econometrics, Elsevier, vol. 63(1), pages 289-306, July.
- Grier, Kevin B. & Perry, Mark J., 1998. "On inflation and inflation uncertainty in the G7 countries," Journal of International Money and Finance, Elsevier, vol. 17(4), pages 671-689, August.
- Andersen, Torben G. & Chung, Hyung-Jin & Sorensen, Bent E., 1999. "Efficient method of moments estimation of a stochastic volatility model: A Monte Carlo study," Journal of Econometrics, Elsevier, vol. 91(1), pages 61-87, July.
- Hakan Berument & Zubeyir Kilinc & Umit Ozlale, 2005. "The Missing Link Between Inflation Uncertainty And Interest Rates," Scottish Journal of Political Economy, Scottish Economic Society, vol. 52(2), pages 222-241, 05.
- Siem Jan Koopman & Eugenie Hol Uspensky, 2002. "The stochastic volatility in mean model: empirical evidence from international stock markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(6), pages 667-689.
When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:391:y:2012:i:20:p:4816-4826. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.