On Measuring the Effect of Inflation Uncertainty on Real GNP Growth
In this paper we reexamine the relationship between inflation uncertainty and total output. To properly specify an estimating equation, we investigate the time series properties of two frequently used measures of inflation uncertainty. We fail to reject the hypothesis that each series has a unit root. However, the uncertainty measures are not cointegrated with output and relative oil prices. This means that the proper specification is in terms of differences. With this specification we find that an increase in inflation uncertainty growth reduces real GNP growth but, unlike earlier work, we find that this effect is temporary. It is also unlikely that an inflation uncertainty shock on its own could produce a recession. Copyright 1996 by Royal Economic Society.
Volume (Year): 48 (1996)
Issue (Month): 1 (January)
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