Another Perspective on the Effects of Inflation Uncertainty

28 Pages Posted: 23 Mar 2001 Last revised: 15 Feb 2013

See all articles by John Elder

John Elder

Colorado State University

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

Elder, John, Another Perspective on the Effects of Inflation Uncertainty (April 4, 2003). Journal of Money, Credit, and Banking, Vol. 36, No. 5, 2004, Available at SSRN: https://ssrn.com/abstract=262182 or http://dx.doi.org/10.2139/ssrn.262182

John Elder (Contact Author)

Colorado State University ( email )

Dept of Finance & Real Estate
1272 Campus Delivery
Fort Collins, CO 80523
United States
970-491-2952 (Phone)

HOME PAGE: http://lamar.colostate.edu/~jelder