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Inflation and inflation uncertainty: Evidence from two Transition Economies

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Abstract

This paper examines the causal link between inflation and inflation uncertainty for the transition economies of Russia and Ukraine. The Iterated Cumulative Sums of Squares Exponential Generalized Autoregressive Conditional Heteroskedasticity (ICSS-EGARCH-M-t) models that allow for asymmetry and regime shifts in the variance of inflation are employed to establish the inflation-inflation uncertainty causal relationship. We find three breaks in the inflation volatility series that coincide with the major historical events in these two countries. The empirical results reveal strong support of the Friedman-Ball hypothesis in both countries. Additionally, we discover that the reverse causal relation between inflation and inflation uncertainty as predicted by the Holland hypothesis holds in Ukraine, but this stabilization policy behavior does not seem to prevail in Russia.

Suggested Citation

  • Ahmad Zubaidi Baharumshah & Akram Hasanov & Stilianos Fountas, 2011. "Inflation and inflation uncertainty: Evidence from two Transition Economies," Discussion Paper Series 2011_05, Department of Economics, University of Macedonia, revised Apr 2011.
  • Handle: RePEc:mcd:mcddps:2011_05
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    Cited by:

    1. Carmen PINTILESCU & Mircea ASANDULUI & Elena-Daniela VIORICA & Danut-Vasile JEMNA, 2016. "Investigation On The Causal Relationship Between Inflation, Output Growth And Their Uncertainties In Romania," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 17, pages 71-89, June.
    2. repec:eee:riibaf:v:42:y:2017:i:c:p:75-93 is not listed on IDEAS

    More about this item

    Keywords

    transition economies; inflation; inflation uncertainty; ICSS-EGARCH-t.;

    JEL classification:

    • I20 - Health, Education, and Welfare - - Education - - - General
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions

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