Inflation, Inflation Uncertainty, and a Common European Monetary Policy
The relationship between inflation and inflation uncertainty is investigated in six European Union countries for the period 1960 to 1999. EGARCH models are used to generate a measure of inflation uncertainty and then Granger methods are employed to test for causality between average inflation and inflation uncertainty. In all the European countries, except Germany, inflation significantly raises inflation uncertainty as predicted by Friedman. However, in all countries except the UK, and possibly Italy, inflation uncertainty does not cause negative output effects implying that a common European monetary policy applied by the ECB might not lead to asymmetric real effects via the inflation uncertainty channel. Less robust evidence is found regarding the direction of the impact of a change in inflation uncertainty on inflation.In Germany, the Netherlands, and to a lesser extent Spain, increased inflation uncertainty lowers inflation while in the UK, Italy, and to a lesser extent France, increased inflation uncertainty raises inflation. These results are generally consistent with the existing rankings of Central Bank Independence.
|Date of creation:||2001|
|Date of revision:||2001|
|Publication status:||Published in Applied Economics Letters Vol.3 No. 7, 1996|
|Contact details of provider:|| Postal: St. Anthony's College, Newcastle Road, Galway|
Phone: +353-91 524411 ext. 2501
Fax: +353-91 524130
Web page: http://economics.nuigalway.ie
More information through EDIRC
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.:
- Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
- Tim Bollerslev & Jeffrey M. Wooldridge, 1988. "Quasi-Maximum Likelihood Estimation of Dynamic Models with Time-Varying Covariances," Working papers 505, Massachusetts Institute of Technology (MIT), Department of Economics.
- 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.
- Stilianos Fountas & Menelaos Karanasos & Marika Karanassou, "undated".
"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 0047, National University of Ireland Galway, Department of Economics, revised 2000.
- 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.
- 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 187-197, April.
- 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.).
- Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
- 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.
- Grier, Kevin B. & Tullock, Gordon, 1989. "An empirical analysis of cross-national economic growth, 1951-1980," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 259-276, September.
- Cosimano, Thomas F & Jansen, Dennis W, 1988. "Estimates of the Variance of U.S. Inflation Based upon the ARCH Model: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(3), pages 409-421, August.
- 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. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:nig:wpaper:0054. 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: (Srinivas Raghavendra)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.