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The relation between the level and uncertainty of inflation

Author

Listed:
  • Ester Ruiz

    (Departamento de Estadística y Econometría. Universidad Carlos III de Madrid)

  • Fernando Lorenzo

    (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de Uruguay. Centro de Investigaciones Económicas (CINVE-Uruguay))

Abstract

This paper focus on the problems faced in the empirical investigation of the relation between the level and volatility of inflation. Monthly inflation series seem to be affected by both the presence of outliers and conditional heteroscedasticity. First, the paper illustrates the implications that the presence of outliers and conditional heteroscedasticity have on the usual residual diagnostics. Then, estimates of the level and volatility of inflation are obtained for each of the countries of the G-7 group. Empirical evidence for the majority of the inflation series for these countries indicates both the presence of outliers and conditional heteroscedasticity, and that estimates of the latter are sensitive to the presence of outliers. Finally, the temporal dependence found in the conditional variance is enduring.

Suggested Citation

  • Ester Ruiz & Fernando Lorenzo, 1998. "The relation between the level and uncertainty of inflation," Documentos de Trabajo (working papers) 0698, Department of Economics - dECON.
    • Handle: RePEc:ude:wpaper:0698
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    File URL: https://hdl.handle.net/20.500.12008/2317
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    References listed on IDEAS

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    More about this item

    Keywords

    Conditional Heteroscedasticity; Diagnostic; Inflation; Outlier; Stochastic Volatility.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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