Inflation and Inflation Uncertainty Nexus: Empirical Evidence from Pakistan

Sajid Javed (), Saud Ahmad Khan, Azad Haider () and Farzana Shaheen
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Saud Ahmad Khan: School of Economics, International Islamic University, Islamabad, Pakistan.

International Journal of Economics and Financial Issues, 2012, vol. 2, issue 3, 348-356

Abstract: This study examines relationship between Inflation and Inflation uncertainty for Pakistan using monthly data over 1957:1-2007:12. ARMA-GARCH model is applied to estimate conditional volatility of inflation. Findings of the study support Friedman-Ball hypothesis for Pakistan as Granger-causality test reveals that inflation affects inflation uncertainty positively. We find no evidence for inflation uncertainty affecting inflation rates as suggested by Cukierman & Meltzer (1986) and only unidirectional relation is evident with causality running from inflation to inflation uncertainty. High volatility persistence for inflation is also confirmed. Results of the study may be useful for policymakers at central bank to devise more efficient monetary policy.

Keywords: Friedman-Ball Hypothesis; Inflation Uncertainty; GARCH; Granger Causality (search for similar items in EconPapers)
JEL-codes: E0 E23 E31 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2012-03-12

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