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Granger Causality between Inflation and Inflation Uncertainty in Iran: A MSVAR Approach

Asadollah Farzinvash (), Naaser Elaahi (), Seyed Ziaoddin Kiaalhosseini () and Abdorrahim Haashemi Dizaj ()
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Asadollah Farzinvash: Professor of Economics, University of Tehran
Naaser Elaahi: Assistant Professor of Economics, Mofid University
Seyed Ziaoddin Kiaalhosseini: Assistant Professor of Economics, Mofid University
Abdorrahim Haashemi Dizaj: Ph.D. Candidate in Economics, Mofid University

Quarterly Journal of Applied Theories of Economics, 2016, vol. 3, issue 2, pages 23-48

Abstract: The main purpose of the present research is to study the Causal relationship between inflation and inflation uncertainty in Iran’s economy during 1990:1 – 2015:4. To achieve this goal, this paper used Vector Auto Regression model with the possibility of changing Markov Regime (MS – VAR). Results obtained from model estimation showed that depending on the placement of inflation and uncertainty variables on the regimes, causal relationship among these variables can be different. In general, results obtained from the research in relation to the presence of causality relationship from inflation to uncertainty of inflation showed that in estimated 5 cases out of the 6 cases, Friedman's (1977) and Ball’s hypothesis (1992), that inflation causes inflation uncertainty to increase, have been confirmed. Also, in the case of the causal relationship from uncertainty of inflation to inflation, it is showed that only in one case out of the 6 studied cases, Pourgerami’s and Maskus’s hypothesis (1987), that an increase in inflation causes a decrease in inflation uncertainty, has been confirmed.

Keywords: Granger causality; Inflation; Inflation uncertainty; Markov switching. (search for similar items in EconPapers)
JEL-codes: C32 C54 E31 (search for similar items in EconPapers)
Date: 2016
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