Is the relationship between ination and its uncertainty linear?

M. Karanasos () and S. Schurer
Additional contact information
M. Karanasos: Brunel university
S. Schurer: Ruhr Graduate School in Economics

No 463, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: We use parametric power ARCH models of the conditional variance of inflation and monthly data in Germany, the Netherlands and Sweden for the period 1962-2004 to examine the relationship between inflation and inflation uncertainty. In two out of the three countries inflation significantly raises inflation uncertainty as predicted by Friedman. Increased nominal uncertainty affects inflation in all countries but not in the same manner. The results for Germany and the Netherlands support the Cukierman-Meltzer hypothesis. In Sweden uncertainty about the future inflation appears to have a negative impact on inflation

Keywords: GARCH-in-mean; In‡ation; Level e¤ect (search for similar items in EconPapers)
JEL-codes: C22 E31 (search for similar items in EconPapers)
Date: 2006-07-04

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Persistent link: http://EconPapers.repec.org/RePEc:sce:scecfa:463

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