Another Perspective on the Effects of Inflation Uncertainty
28 Pages Posted: 23 Mar 2001 Last revised: 15 Feb 2013
Date Written: April 4, 2003
Abstract
This paper examines the effects of inflation uncertainty on real economic activity by utilizing a flexible, dynamic, multivariate framework that accommodates possible interaction between the conditional means and variances. The empirical model is based on a familiar identified vector autoregressive framework, modified to accommodate multivariate generalized autoregressive conditional heteroskedasticity. Our empirical model is preferred to the baseline VAR by likelihood based information criteria, and it retains the important dynamics of the underlying VAR. We find that an average shock to inflation uncertainty has tended to reduce output growth over three months by about 22 basis points.
Keywords: Inflation, inflation uncertainty, multivariate GARCH, VAR
JEL Classification: E52, C32
Suggested Citation: Suggested Citation