Is the Relationship between Inflation and Its Uncertainty Linear?

Karanasos Menelaos and Stefanie Schurer
Additional contact information
Karanasos Menelaos: Brunel University, Kingston Ln, London,Uxbridge, United Kingdom of Great Britain and Northern Ireland

German Economic Review, 2008, vol. 9, issue 3, 265-286

Abstract: We use parametric power ARCH models of the conditional variance of inflation to model the relationship between inflation and its uncertainty using monthly data for Germany, the Netherlands and Sweden over a period ranging from 1962 to 2004. For all three countries inflation significantly raises inflation uncertainty as predicted by Friedman. Increased uncertainty affects inflation in all countries but not in the same manner. For Sweden we find a negative impact in accordance with the Holland hypothesis, whereas for Germany and the Netherlands we find the opposite in support of the Cukierman-Meltzer hypothesis. In a sensitivity analysis we show that an arbitrary choice of the heteroscedasticity parameter influences this relationship significantly.

Keywords: GARCH-in-mean; inflation; level effect; nominal uncertainty; power transformation (search for similar items in EconPapers)
Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/j.1468-0475.2008.00433.x (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Journal Article: Is the Relationship between Inflation and Its Uncertainty Linear? (2008)
Working Paper: Is the Relationship Between Inflation and its Uncertainty Linear? (2007)
Working Paper: Is the relationship between ination and its uncertainty linear? (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:germec:v:9:y:2008:i:3:p:265-286

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/ger/html

DOI: 10.1111/j.1468-0475.2008.00433.x

Access Statistics for this article

German Economic Review is currently edited by Peter Egger, Almut Balleer, Jesus Crespo-Cuaresma, Mario Larch, Aderonke Osikominu and Georg Wamser

More articles in German Economic Review from De Gruyter
Bibliographic data for series maintained by Peter Golla ().