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Inflation, output growth, and nominal and real uncertainty: Empirical evidence for the G7

Authors
Journal
Journal of International Money and Finance
0261-5606
Publisher
Elsevier
Publication Date
Volume
26
Issue
2
Identifiers
DOI: 10.1016/j.jimonfin.2006.10.006
Keywords
  • Inflation
  • Output Growth
  • Uncertainty
  • Granger-Causality
  • Garch Models
Disciplines
  • Economics

Abstract

Abstract We use univariate GARCH models of inflation and output growth and monthly data for the G7 covering the 1957–2000 period to test for the causal effect of real and nominal macroeconomic uncertainty on inflation and output growth, and the effect of inflation on inflation uncertainty. Our evidence supports a number of important conclusions. First, inflation is a positive determinant of uncertainty about inflation. Second, output growth uncertainty is a positive determinant of the output growth rate. Third, there is mixed evidence regarding the effect of inflation uncertainty on inflation and output growth. Hence, uncertainty about the inflation rate is not necessarily detrimental to economic growth. Finally, there is not much evidence supporting the hypothesis that output uncertainty raises inflation.

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