Time-Frequency Relationship between Inflation and Inflation Uncertainty for the U.S.: Evidence from Historical Data

27 Pages Posted: 29 Jul 2016

See all articles by Claudiu Albulescu

Claudiu Albulescu

Politehnica University of Timisoara

Aviral Kumar Tiwari

IFHE University (ICFAI) - Faculty of Management

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Rangan Gupta

University of Pretoria - Department of Economics

Date Written: December 8, 2015

Abstract

We provide new evidence on the relationship between inflation and its uncertainty in the U.S. on an historical basis, covering the period 1775-2014. First, we use a bounded approach for measuring inflation uncertainty, as proposed by Chan et al. (2013), and we compare the results with the Stock and Watson (2007) method. Second, we employ the wavelet methodology to analyze the co-movements and causal effects between the two series. Our results provide evidence of a relationship between inflation and its uncertainty that varies across time and frequency. First, we show that in the medium- and long-runs, the Freidman–Ball hypothesis holds when the measure of uncertainty is unbounded, while if the opposite applies, the Cukierman-Meltzer reasoning prevails. Second, we discover mixed evidence about the inflation-uncertainty nexus in the short-run, findings which explain the mixed results reported to date in the empirical literature.

Keywords: historical inflation rate, uncertainty, continuous wavelet transform, bounded series, U.S.

JEL Classification: C22, E31, N11, N12

Suggested Citation

Albulescu, Claudiu and Tiwari, Aviral Kumar and Miller, Stephen M. and Gupta, Rangan, Time-Frequency Relationship between Inflation and Inflation Uncertainty for the U.S.: Evidence from Historical Data (December 8, 2015). Available at SSRN: https://ssrn.com/abstract=2815556 or http://dx.doi.org/10.2139/ssrn.2815556

Claudiu Albulescu

Politehnica University of Timisoara ( email )

P-ta Victoriei, no. 2
Timisoara, Timis 300006
Romania

HOME PAGE: http://https://sites.google.com/site/claudiutiberiualbulescu/

Aviral Kumar Tiwari

IFHE University (ICFAI) - Faculty of Management ( email )

India

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

Rangan Gupta

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

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