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

Author

Listed:
  • Stilianos Fountas
  • Menelaos Karanasos

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

Abstract

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).

Suggested Citation

  • Stilianos Fountas & Menelaos Karanasos, 2002. "Inflation, Output Growth, and Nominal and Real Uncertainty: Empirical Evidence for the G7," Working Papers 0064, National University of Ireland Galway, Department of Economics, revised 2002.
    • Handle: RePEc:nig:wpaper:0064
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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