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The Role of Inflation Uncertainty in Germany: Friedman's Hypothesis Revisited

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  • Bohara, Alok K
  • Sauer, Christine

Abstract

The paper reconsiders Friedman's (1977) proposition that increased inflation uncertainty may have adverse real effects for the German case. A proxy for the unobservable uncertainty variable is obtained from the Kalman-filtering estimation of a time-varying parameter model of inflation. The measure is introduced into an output equation that also includes anticipated and unanticipated inflation, thus allowing tests of both the Friedman and the Macro Rational Expectations hypotheses. The empirical evidence does not provide strong support for Friedman's view. Unanticipated inflation, on the other hand, seems to play a significant role for German output growth in the short run.

Suggested Citation

  • Bohara, Alok K & Sauer, Christine, 1994. "The Role of Inflation Uncertainty in Germany: Friedman's Hypothesis Revisited," Empirical Economics, Springer, vol. 19(4), pages 611-627.
  • Handle: RePEc:spr:empeco:v:19:y:1994:i:4:p:611-27
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    Cited by:

    1. Sajid Amin Javed & Saud Ahmad Khan & Azad Haider & Farzana Shaheen, 2012. "Inflation and Inflation Uncertainty Nexus: Empirical Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 348-356.
    2. Hachicha, Ahmed & Lean Hooi Hooi, 2013. "Inflation, inflation uncertainty and output in Tunisia," Economics Discussion Papers 2013-1, Kiel Institute for the World Economy (IfW).
    3. Narayan, Seema & Narayan, Paresh Kumar, 2013. "The inflation–output nexus: Empirical evidence from India, South Africa, and Brazil," Research in International Business and Finance, Elsevier, vol. 28(C), pages 19-34.
    4. Wilson, Bradley Kemp, 2006. "The links between inflation, inflation uncertainty and output growth: New time series evidence from Japan," Journal of Macroeconomics, Elsevier, vol. 28(3), pages 609-620, September.

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