Bidirectional linkage between inflation and inflation uncertainty – the case of Eastern European countries

Dejan Živkov (), Jovan Njegic () and Marko Pecanac
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Jovan Njegic: Novi Sad Business School, University of Novi Sad, Novi Sad, Serbia
Marko Pecanac: Cabinet of Serbian Prime Minister, Serbia

Baltic Journal of Economics, 2014, vol. 14, issue 1-2, 124-139

Abstract: This paper explores bidirectional linkage between inflation and its uncertainty by observing monthly data of 11 Eastern European countries. The methodological approach comprises two steps. First, inflation uncertainty series have been created by choosing an optimal Generalized Autoregressive Conditional Heteroskedasticity- (GARCH) type model. Subsequently, inflation and inflation uncertainty have been observed together by two models examining whether Friedman's and Cukierman–Meltzer's hypotheses hold for selected Eastern Europe Countries (EEC). Due to the heterogeneous behaviour of some series of inflation and inflation uncertainty, the unconditional quantile regression estimation technique has been applied because of its robustness to the particular non-normal characteristics and outliers’ presence in the empirical data. According to the findings, both Friedman's and Cukierman–Meltzer's hypotheses have been confirmed primarily for the largest EEC with flexible exchange rate. In contrast, these theories are refuted in smaller, open economies with firm exchange rate regime.

Keywords: inflation; inflation uncertainty; GARCH; quantile regression; Eastern European countries (search for similar items in EconPapers)
JEL-codes: C32 C51 E31 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:bic:journl:v:14:y:2014:i:1-2:p:124-139

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