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Asymmetries, uncertainty and inflation: evidence from developed and emerging economies

Author

Listed:
  • Christina Anderl

    (London South Bank University)

  • Guglielmo Maria Caporale

    (Brunel University London)

Abstract

This paper examines the asymmetric impact of economic policy uncertainty (EPU) and oil price uncertainty (OPU) on inflation by using a Nonlinear ARDL (NARDL) model, which is compared to a benchmark linear ARDL one. Using monthly data from the 1990s until August 2022 for a number of developed and emerging countries, we find that the estimated effects of both EPU and OPU shocks are larger when allowing for asymmetries in the context of the NARDL framework. Further, EPU shocks, especially negative ones, have a stronger impact on inflation than OPU ones and capture some of the monetary policy uncertainty, thereby reducing the direct effect of interest rate changes on inflation. Since EPU shocks reflect, at least to some extent, monetary policy uncertainty, greater transparency and more timely communications from monetary authorities to the public would be helpful to anchor inflation expectations.

Suggested Citation

  • Christina Anderl & Guglielmo Maria Caporale, 2023. "Asymmetries, uncertainty and inflation: evidence from developed and emerging economies," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(4), pages 984-1017, December.
    • Handle: RePEc:spr:jecfin:v:47:y:2023:i:4:d:10.1007_s12197-023-09639-6
    DOI: 10.1007/s12197-023-09639-6
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    Keywords

    Inflation; Asymmetries; NARDL; Oil price uncertainty; Economic policy uncertainty;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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