Inflation and Inflation Uncertainty in the United Kingdom: Evidence from GARCH modelling
This paper examines the relationship between inflation-uncertainty and the impact of inflation targeting using British data over the period 1972-2002. Uncertainty is proxied using the estimated conditional volatility from symmetric, asymmetric, and component GARCH-M models of inflation. The results indicate a positive relationship between past inflation and current uncertainty. We control for the indirect effect of lower average inflation throughout the last decade of inflation targeting and find that the adoption of an explicit target eliminates inflation persistence and reduces long-run uncertainty. Monetary authorities of implicit targeting countries should consider the extra benefits associated with formal targets.
|Date of creation:||Nov 2002|
|Date of revision:|
|Contact details of provider:|| Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stilianos Fountas & Menelaos Karanasos & Marika Karanassou, .
"A GARCH Model of Inflation and Inflation Uncertainty with Simultaneous Feedback,"
00/24, Department of Economics, University of York.
- Stilianos Fountas & Menelaos Karanasos & Marika Karanassou, 2000. "A GARCH Model of Inflation and Inflation Uncertainty with Simultaneous Feedback," Working Papers 414, Queen Mary University of London, School of Economics and Finance.
- Stilianos Fountas & Menelaos Karanasos & Marika Karanassou, 2000. "A GARCH Model of Inflation and Inflation Uncertainty with Simultaneous Feedback," Working Papers 0047, National University of Ireland Galway, Department of Economics, revised 2000.
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Evans, Martin, 1991. "Discovering the Link between Inflation Rates and Inflation Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 169-84, May.
- Allan D. Brunner & Gregory D. Hess, 1990.
"Are higher levels of inflation less predictable? A state-dependent conditional heteroskedasticity approach,"
Finance and Economics Discussion Series
141, Board of Governors of the Federal Reserve System (U.S.).
- Brunner, Allan D & Hess, Gregory D, 1993. "Are Higher Levels of Inflation Less Predictable? A State-Dependent Conditional Heteroscedasticity Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(2), pages 187-97, April.
- Stephen G. Cecchetti & Michael Ehrmann, 2002.
"Does Inflation Targeting Increase Output Volatility?: An International Comparison of Policymakers' Preferences and Outcomes,"
Central Banking, Analysis, and Economic Policies Book Series,
in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 9, pages 247-274
Central Bank of Chile.
- Stephen Cecchetti & Michael Ehrmann, 2000. "Does Inflation Targeting Increase Output volatility? An International Comparison of Policy Maker's Preferences and Outcomes," Working Papers Central Bank of Chile 69, Central Bank of Chile.
- Stephen G. Cecchetti & Michael Ehrmann, 1999. "Does Inflation Targeting Increase Output Volatility? An International Comparison of Policymakers' Preferences and Outcomes," NBER Working Papers 7426, National Bureau of Economic Research, Inc.
- Johnson, David R., 2002. "The effect of inflation targeting on the behavior of expected inflation: evidence from an 11 country panel," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1521-1538, November.
- Fischer, Stanley, 1981. "Towards an understanding of the costs of inflation: II," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 5-41, January.
- Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
- Crawford, A & Kasumovich, M, 1996. "Does Inflation Uncertainty Vary with the Level of Inflation?," Staff Working Papers 96-09, Bank of Canada.
- Nicoletta Batini & Andrew G Haldane, 1999.
"Forward-looking rules for monetary policy,"
Bank of England working papers
91, Bank of England.
- Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
- Pierre L. Siklos, 1999. "Inflation-target design: changing inflation performance and persistence in industrial countries," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 46-58.
- Alogoskoufis, George, 1991.
"Monetary Accommodation, Exchange Rate Regimes and Inflation Persistence,"
CEPR Discussion Papers
503, C.E.P.R. Discussion Papers.
- Alogoskoufis, George S, 1992. "Monetary Accommodation, Exchange Rate Regimes and Inflation Persistence," Economic Journal, Royal Economic Society, vol. 102(412), pages 461-80, May.
- Mike Joyce, 1995. "Modelling UK Inflation Uncertainty: The Impact of News and the Relationship with Inflation," Bank of England working papers 30, Bank of England.
- Grier, Kevin B. & Perry, Mark J., 1998. "On inflation and inflation uncertainty in the G7 countries," Journal of International Money and Finance, Elsevier, vol. 17(4), pages 671-689, August.
- Chorng-Huey Wong & Eric V. Clifton & Gene L. Leon, 2001. "Inflation Targeting and the Unemployment-Inflation Trade-off," IMF Working Papers 01/166, International Monetary Fund.
- Zakoian, Jean-Michel, 1994. "Threshold heteroskedastic models," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 931-955, September.
- Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
When requesting a correction, please mention this item's handle: RePEc:bru:bruedp:02-28. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John.Hunter)
If references are entirely missing, you can add them using this form.