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Inflation, Output Growth, and Nominal and Real Uncertainty: Empirical Evidence for the G7

  • Stilianos Fountas
  • Menelaos Karanasos


    (Department of Economics, National University of Ireland, Galway)

We use univariate GARCH models of inflation and output growth and monthly data on inflation and output growth in the G7 for the 1960-2000 period to examine all possible causal relationships between inflation, output growth, real, and nominal uncertainty, and hence test for a number of economic theories. We derive a number of important results: First, we find strong evidence that inflation is a negative determinant of output growth. This effect works both directly and indirectly, i.e., via the inflation uncertainty channel. Second, we obtain evidence supporting the Cukierman-Meltzer hypothesis in most countries. In Japan the stabilisation hypothesis seems to hold. Finally, in most countries we find that output growth uncertainty is a positive determinant of the growth rate as predicted by Black (1987).

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Paper provided by National University of Ireland Galway, Department of Economics in its series Working Papers with number 0064.

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Date of creation: 2002
Date of revision: 2002
Handle: RePEc:nig:wpaper:0064
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