Cross-sectional evidence on the relation between monetary policy, macroeconomic conditions and low-frequency inflation uncertainty

Christian Conrad and Matthias Hartmann

No 574, Working Papers from University of Heidelberg, Department of Economics

Abstract: We examine how the interaction between monetary policy and macroeconomic conditions affects inflation uncertainty in the long-term. The unobservable inflation uncertainty is quantified by means of the slowly evolving long-term variance component of inflation in the framework of the Spline-GARCH model (Engle and Rangel, 2008). For a cross-section of 13 developed economies, we find that long-term inflation uncertainty is high if central bank governors are perceived as less inflation-averse and if the conduct of monetary policy is ad-hoc rather than rule-based.

Keywords: Inflation uncertainty; Central banking; Spline-GARCH. (search for similar items in EconPapers)
Date: 2014-10-21
New Economics Papers: this item is included in nep-mac and nep-mon
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Working Paper: Cross sectional evidence on the relation between monetary policy, macroeconomic conditions and low-frequency inflation uncertainty (2014)
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