Relationship between Inflation and Inflation Uncertainty: The Case of Serbia

10 Pages Posted: 24 Feb 2008

Date Written: 9/15/2007

Abstract

The purpose of this paper is to examine the relationship between inflation and inflation uncertainty in the Serbian economy, being particularly vulnerable to shocks in inflation rate, during transition period 2001-2007. Based on monthly data several GARCH specifications are estimated providing measure for inflation uncertainty. Derived variables are then included in VAR model to test for Granger-causality between inflation and its uncertainty. Models that consider only permanent and transitory components of prices are also estimated to investigate inflation-uncertainty relationship in the long and the short run. Main conclusion of the paper is that high inflation invokes high uncertainty, while high uncertainty negatively affects level of inflation at long horizon.

Keywords: GARCH model, inflation rate, the Cukierman-Meltzer hypothesis, the Friedman-Ball hypothesis, VAR model

JEL Classification: E31

Suggested Citation

Mladenovic, Zorica L., Relationship between Inflation and Inflation Uncertainty: The Case of Serbia (9/15/2007). Available at SSRN: https://ssrn.com/abstract=1096648 or http://dx.doi.org/10.2139/ssrn.1096648

Zorica L. Mladenovic (Contact Author)

University of Belgrade ( email )

Studentski trg 1
Belgrade, 11000
Serbia

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