Inflation, output and uncertainty in the era of inflation targeting – A multi-economy view on causal linkages

Matthias Hartmann () and Jan Roestel

Journal of International Money and Finance, 2013, vol. 37, issue C, 98-112

Abstract: This study provides cross country robust evidence on interdependencies among inflation, output growth and respective uncertainties for the current era of low inflation policies. We attribute the extant empirical disagreement on these relations to the fact that long sampling periods and single economies are typically considered for analysis. In this study, VARX-MGARCH-M models are estimated for 34 developed and emerging economies and the time period of 1990–2010. We study average (Granger) causal effects by aggregating parameter estimates over economies. The cross sectional variation of estimates serves as a means to assess the robustness of empirical findings. Over the entire cross section, we find that both inflation and inflation uncertainty significantly reduce output growth. Economies with low inflation rates are particularly at risk to incur output losses from increasing inflation. We also find spillover effects among uncertainty variables, where the causal impact, if present, seems to point from the uncertainty in output to inflation uncertainty.

Keywords: Inflation uncertainty; Inflation; Monetary policy; GARCH; Mean group estimator (search for similar items in EconPapers)
JEL-codes: C31 C32 C51 E23 E31 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:37:y:2013:i:c:p:98-112

DOI: 10.1016/j.jimonfin.2013.05.011

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