Empirical analysis on the real effects of inflation and exchange rate uncertainty: The case of Colombia
This paper re-examines the effects of inflation and exchange rate uncertainty on real economic activity. The existent literature has treated both issues as separate subject matters. It has emphasized either the issue of inflation uncertainty or exchange rate uncertainty on economic growth or on different measures of economic activity. This paper attempts dealing with both issues by analyzing the magnitudes and direction of the effect of both: inflation and exchange rate uncertainty on real economic activity. By introducing dummy variables, we control for monetary policy change (the change to inflation targeting and flexible exchange rate). By using a generalized autoregressive conditional variance (GARCH) model of inflation and exchange rates, the conditional variances of the model’s forecast errors were extracted as measures of uncertainty. The results suggest that higher levels of inflation Granger cause more uncertainty and vice versa for the Colombian economy. Also, only inflation uncertainty matters for output by exerting a negative influence.
|Date of creation:||27 Nov 2005|
|Date of revision:|
|Note:||Type of Document - pdf; pages: 22. Publiseh in 'Ecos de Economia' at|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
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.:
- Vittorio Corbo & Klaus Schmidt-Hebbel, 2002.
"Inflation Targeting in Latin America,"
Documentos de Trabajo
230, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Bera, Anil K & Higgins, Matthew L, 1993. " ARCH Models: Properties, Estimation and Testing," Journal of Economic Surveys, Wiley Blackwell, vol. 7(4), pages 305-66, December.
- Chris Ryan & Christopher Thompson, 2000. "Inflation Targeting and Exchange Rate Fluctuations in Australia," RBA Research Discussion Papers rdp2000-06, Reserve Bank of Australia.
- Crawford, A & Kasumovich, M, 1996. "Does Inflation Uncertainty Vary with the Level of Inflation?," Staff Working Papers 96-09, Bank of Canada.
- Engle, Robert F & Granger, Clive W J, 1987.
"Co-integration and Error Correction: Representation, Estimation, and Testing,"
Econometric Society, vol. 55(2), pages 251-76, March.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Henry Ma, 1998. "Inflation, Uncertainty, and Growth in Colombia," IMF Working Papers 98/161, International Monetary Fund.
- Igal Magendzo, 1997. "Inflación e Incertidumbre Inflacionaria en Chile," Working Papers Central Bank of Chile 15, Central Bank of Chile.
- Ball, Laurence, 1992.
"Why does high inflation raise inflation uncertainty?,"
Journal of Monetary Economics,
Elsevier, vol. 29(3), pages 371-388, June.
- Laurence Ball, 1990. "Why Does High Inflation Raise Inflation Uncertainty?," NBER Working Papers 3224, National Bureau of Economic Research, Inc.
- Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpif:0511006. 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: (EconWPA)
If references are entirely missing, you can add them using this form.