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Is macroeconomic uncertainty bad for macroeconomic performance? Evidence from five Asian countries

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Listed:
  • Donal Bredin
  • Stilianos Fountas

Abstract

We use a very general bivariate GARCH-M model and quarterly data for five Asian countries to test for the impact of real and nominal macroeconomic uncertainty on inflation and output growth. Our evidence supports a number of important conclusions. First, in the majority of countries uncertainty regarding the output growth rate is related negatively to the average growth rate. Second, contrary to expectations, inflation uncertainty in most cases does not harm the output growth performance of an economy. Third, inflation and output uncertainty have a mixed effect on inflation. These results imply that macroeconomic uncertainty may even improve macroeconomic performance, i.e., raise output growth and reduce inflation.

Suggested Citation

  • Donal Bredin & Stilianos Fountas, 2007. "Is macroeconomic uncertainty bad for macroeconomic performance? Evidence from five Asian countries," Centre for Financial Markets Working Papers 10197/1178, Research Repository, University College Dublin.
    • Handle: RePEc:rru:cfmwps:10197/1178
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    File URL: http://hdl.handle.net/10197/1178
    File Function: First version, 2007
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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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E0 - Macroeconomics and Monetary Economics - - General

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