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Inflation, inflation uncertainty and output growth: what does the data say for Malaysia?

Listed author(s):
  • Ahmad Zubaidi Baharumshah
  • Siew-Voon Soon

Purpose - – The purpose of this paper is to examine the causal relationships between inflation, output growth and their uncertainties in Malaysia. Design/methodology/approach - – The modeling approach allows for structural breaks to avoid the masking of specific impacts. Findings - – Based on the asymmetric Generalized Autoregressive Conditional Heteroskedasticity model, the paper found strong evidence favoring a positive effect of a change in the inflation uncertainty as predicted by the Friedman-Ball hypothesis. In addition, inflation (inflation uncertainty) has direct (indirect) negative effect on the output growth. The results are consistent with the Taylor effect – increases in inflation uncertainty decreases output uncertainty. The analysis also reveals that economic uncertainty lowers the growth rate of output, complying with Bernanke's idea. Originality/value - – The present study suggests that extra efforts are required to locate the breaks in the variance in order to draw concrete evidence on link between economic uncertainty and macroeconomic performance.

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File URL: http://www.emeraldinsight.com/10.1108/JES-05-2012-0073?utm_campaign=RePEc&WT.mc_id=RePEc
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Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 41 (2014)
Issue (Month): 3 (May)
Pages: 370-386

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Handle: RePEc:eme:jespps:v:41:y:2014:i:3:p:370-386
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