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Cross-sectional evidence on the relation between monetary policy, macroeconomic conditions and low-frequency inflation uncertainty

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  • Conrad, Christian
  • Hartmann, Matthias

Abstract

We examine how the interaction between monetary policy and macroeconomic conditions affects inflation uncertainty in the long-term. The unobservable inflation uncertainty is quantified by means of the slowly evolving long-term variance component of inflation in the framework of the Spline-GARCH model (Engle and Rangel, 2008). For a cross-section of 13 developed economies, we find that long-term inflation uncertainty is high if central bank governors are perceived as less inflation-averse and if the conduct of monetary policy is ad-hoc rather than rule-based.

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  • Conrad, Christian & Hartmann, Matthias, 2014. "Cross-sectional evidence on the relation between monetary policy, macroeconomic conditions and low-frequency inflation uncertainty," Working Papers 0574, University of Heidelberg, Department of Economics.
    • Handle: RePEc:awi:wpaper:0574
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    2. Ftiti, Zied & Aguir, Abdelkader & Smida, Mounir, 2017. "Time-inconsistency and expansionary business cycle theories: What does matter for the central bank independence–inflation relationship?," Economic Modelling, Elsevier, vol. 67(C), pages 215-227.

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    More about this item

    Keywords

    Inflation uncertainty; Central banking; Spline-GARCH.;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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