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Modeling Volatility Spillovers between the Variabilities of US Inflation and Output: the UECCC GARCH Model

Author

Listed:
  • Christian Conrad

    () (University of Heidelberg, Department of Economics)

  • Menelaos Karanasos

    () (Economics and Finance, Brunel University)

Abstract

This paper employs the unrestricted extended constant conditional correlation GARCH specification proposed in Conrad and Karanasos (2008) to examine the intertemporal relationship between the uncertainties of inflation and output growth in the US. We find that inflation uncertainty effects output variability positively, while output variability has a negative effect on inflation uncertainty.

Suggested Citation

  • Christian Conrad & Menelaos Karanasos, 2008. "Modeling Volatility Spillovers between the Variabilities of US Inflation and Output: the UECCC GARCH Model," Working Papers 0475, University of Heidelberg, Department of Economics, revised Sep 2008.
  • Handle: RePEc:awi:wpaper:0475
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    File URL: http://www.uni-heidelberg.de/md/awi/forschung/dp475.pdf
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    References listed on IDEAS

    as
    1. Nakatani, Tomoaki & Teräsvirta, Timo, 2008. "Positivity constraints on the conditional variances in the family of conditional correlation GARCH models," Finance Research Letters, Elsevier, vol. 5(2), pages 88-95, June.
    2. Dotsey, Michael & Sarte, Pierre Daniel, 2000. "Inflation uncertainty and growth in a cash-in-advance economy," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 631-655, June.
    3. Holland, A Steven, 1995. "Inflation and Uncertainty: Tests for Temporal Ordering," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 827-837, August.
    4. Devereux, Michael, 1989. "A Positive Theory of Inflation and Inflation Variance," Economic Inquiry, Western Economic Association International, vol. 27(1), pages 105-116, January.
    5. Kevin B. Grier & Ólan T. Henry & Nilss Olekalns & Kalvinder Shields, 2004. "The asymmetric effects of uncertainty on inflation and output growth," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(5), pages 551-565.
    6. Jeantheau, Thierry, 1998. "Strong Consistency Of Estimators For Multivariate Arch Models," Econometric Theory, Cambridge University Press, vol. 14(01), pages 70-86, February.
    7. Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    8. Conrad, Christian & Karanasos, Menelaos, 2010. "Negative Volatility Spillovers In The Unrestricted Eccc-Garch Model," Econometric Theory, Cambridge University Press, vol. 26(03), pages 838-862, June.
    9. Fountas, Stilianos & Karanasos, Menelaos, 2007. "Inflation, output growth, and nominal and real uncertainty: Empirical evidence for the G7," Journal of International Money and Finance, Elsevier, vol. 26(2), pages 229-250, March.
    10. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-1286, September.
    11. Fuhrer, Jeffrey C, 1997. "Inflation/Output Variance Trade-Offs and Optimal Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 214-234, May.
    12. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, pages 1110-1148.
    13. Pindyck, Robert S, 1991. "Irreversibility, Uncertainty, and Investment," Journal of Economic Literature, American Economic Association, pages 1110-1148.
    14. Stilianos Fountas & Menelaos Karanasos & Jinki Kim, 2006. "Inflation Uncertainty, Output Growth Uncertainty and Macroeconomic Performance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(3), pages 319-343, June.
    15. Grier, Robin & Grier, Kevin B., 2006. "On the real effects of inflation and inflation uncertainty in Mexico," Journal of Development Economics, Elsevier, pages 478-500.
    16. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
    17. Logue, Dennis E & Sweeney, Richard James, 1981. "Inflation and Real Growth: Some Empirical Results: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(4), pages 497-501, November.
    18. 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.
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    Cited by:

    1. Conrad, Christian & Karanasos, Menelaos & Zeng, Ning, 2010. "The link between macroeconomic performance and variability in the UK," Economics Letters, Elsevier, vol. 106(3), pages 154-157, March.
    2. Ndoricimpa, Arcade, 2015. "Inflation, output growth and their uncertainties in South Africa: Empirical evidence from an asymmetric multivariate GARCH-M model," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 5-17.

    More about this item

    Keywords

    Bivariate GARCH process; negative volatility feedback; inflation uncertainty; output variability;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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