The Asymmetric Effects of Real and Nominal Uncertainty on Inflation and Output Growth: Empirical Evidence from Bangladesh

Said Zamin Shah, Said Zamin Shah, Ahmad Zubaidi Baharumshah (), Muzafar Shah Habibullah and Siong Hook Law
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Said Zamin Shah: Department of Economics, Faculty of Economics and Management, University Putra Malaysia, 43400 Serdang, Selangor, Malaysia,
Said Zamin Shah: Department of Economics, Islamia College University, Peshawar, Khyber Pukhtunkhwa, Pakistan.

International Journal of Economics and Financial Issues, 2017, vol. 7, issue 1, 377-386

Abstract: This study examines an empirical analysis of the causal links and volatility spillovers between inflation, output growth and their uncertainties in Bangladesh by utilizing the autoregressive AR(p)-exponential generalized AR conditional heteroscedasticity (EGARCH) model for the period 1993-2014. The study shows that EGARCH version provides the best statistical fit by investigating that volatility is variable and asymmetric than symmetric. The empirical results show an overwhelming support for Friedman-Ball hypothesis that inflationary shocks affect inflation uncertainty positively. Both inflation and output growth generate output uncertainty which is detrimental for real economic activity while nominal uncertainty (real uncertainty) is positively (negatively) affecting output growth. Finally, output uncertainty is reducing inflation uncertainty while there is no effect from the opposite side. Our estimated results suggest that policy makers should adopt dynamic stabilization policies in order to reduce a rise in inflation and to achieve economic stability for stimulating output growth further

Keywords: Inflation; Output Growth; Uncertainties; Bangladesh; Autoregressive(p)-Exponential Generalized Autoregressive Conditional Heteroscedasticity (search for similar items in EconPapers)
JEL-codes: C32 C51 C52 E10 E30 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2017-01-49

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