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An Examination of Aggregate Price Uncertainty in Four Countries and SomeImplications for Real Output

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  • Richard T. Froyen
  • Roger N. Waud

Abstract

This study constructs measures of aggregate price uncertainty for four industrialized countries (Canada, West Germany, Great Britain, and the United States) and attempts to assess the extent to which more rapid and more variable price changes appear to have contributed to increased aggregate price uncertainty. For this purpose we examine the relationship across countries and through time between the rate of inflation, inflation variability, and our measures of price uncertainty. In addition we use our measures of price uncertainty to examine the hypothesis, variously put forward by Marshall, Keynes, Milton Friedman, and Okun, that higher aggregate price uncertainty is likely tor esult in lower real output and higher unemployment. Our results suggest that the higher and more variable inflation of the 1970s did increase uncertainty about the aggregate price level in Canada, Great Britain and the United States, but the evidence for West Germany would not sustain such a conclusion. Finally,we did find evidence of a significant negative output effect of aggregate price uncertainty for Canada and the United Kingdom, but not for the United States or West Germany.

Suggested Citation

  • Richard T. Froyen & Roger N. Waud, 1984. "An Examination of Aggregate Price Uncertainty in Four Countries and SomeImplications for Real Output," NBER Working Papers 1460, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1460
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    1. Froyen, Richard T & Waud, Roger N, 1985. "Demand Variability, Supply Shocks and the Output-Inflation Tradeoff," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 9-15, February.
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    Cited by:

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    2. Backé, Peter, 2004. "Fiscal policy and inflation volatility," Working Paper Series 317, European Central Bank.
    3. Dennis W. Jansen, 1989. "Does inflation uncertainty affect output growth? Further evidence," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 43-54.
    4. António Afonso & João Tovar Jalles, 2017. "Fiscal Activism and Price Volatility: Evidence from Advanced and Emerging Economies," Working Papers Department of Economics 2017/04, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    5. Apergis, Nicholas, 1998. "Inflation and Uncertainty: Does the EMS Participation Play Any Role?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 13, pages 586-605.
    6. Barak Hoffman & Sharon Kozicki, 1999. "Implications of rounding and rebasing for empirical analysis using consumer price inflation," Research Working Paper 99-08, Federal Reserve Bank of Kansas City.
    7. Froyen, Richard T. & Waud, Roger N., 1995. "Central bank independence and the output-inflation tradeoff," Journal of Economics and Business, Elsevier, vol. 47(2), pages 137-149, May.
    8. Mark J. Buono, 1989. "The Relationship Between The Variability Of Inflation And Stock Returns: An Empirical Investigation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 12(4), pages 329-339, December.
    9. Gerald Stuber, 2001. "Implications of Uncertainty about Long-Run Inflation and the Price Level," Staff Working Papers 01-16, Bank of Canada.
    10. Mujahid, Hira & Uddin, Imam & Tabash, Mosab & Ayubi, Sharique & Asad, Muhammad, 2021. "Inflation Volatility, Quality Of Institutions, And Openness," MPRA Paper 111151, University Library of Munich, Germany.
    11. Ernani Teixeira, 1991. "Incerteza inflacionária e crescimento do produto e incerteza do produto e crescimento inflacionário," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 2(2), pages 123-133, November.
    12. E. Yuksel & Y. Akdi, 2009. "The effect of different inflation risks on interest rates of the US," Applied Economics Letters, Taylor & Francis Journals, vol. 16(2), pages 169-175.
    13. Metiu, Norbert & Prieto, Esteban, 2023. "The macroeconomic effects of inflation uncertainty," Discussion Papers 32/2023, Deutsche Bundesbank.
    14. Buono, Mark J, 1989. "The Relationship between the Variability of Inflation and Stock Returns: An Empirical Investigation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 12(4), pages 329-339, Winter.
    15. Shesadri Banerjee, 2017. "Empirical Regularities of Inflation Volatility: Evidence from Advanced and Developing Countries," South Asian Journal of Macroeconomics and Public Finance, , vol. 6(1), pages 133-156, June.
    16. Hakan Berument & Zubeyir Kilinc & Umit Ozlale, 2005. "The Missing Link Between Inflation Uncertainty And Interest Rates," Scottish Journal of Political Economy, Scottish Economic Society, vol. 52(2), pages 222-241, May.

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