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Inflation Uncertainty and Output Growth - Evidence from the Asia-Pacific Countries Based on the Multiscale Bayesian Quantile Inference

Dejan Živkov (), Marina Gajic-Glamoclija, Jelena Kovacevic and Sanja Loncar
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Marina Gajic-Glamoclija: Kragujevac business school for management and economics, Serbia
Jelena Kovacevic: LEMIT company, Novi Sad, Serbia
Sanja Loncar: Novi Sad business school, University of Novi Sad, Serbia

Czech Journal of Economics and Finance (Finance a uver), 2020, vol. 70, issue 5, 461-486

Abstract: This paper investigates how inflation uncertainty affects real GDP growth in five Asia-Pacific countries – Australia, New Zealand, Japan, South Korea and Indonesia, whereby these countries adopted inflation targeting (IT) strategy at some point in time. We use several elaborate methodologies – wavelet technique, GARCH with innovative distributions and the Bayesian quantile regression. We determine that inflation uncertainty negatively (positively) affects real GDP growth in periods of economic contraction (prosperity) in all the countries. In addition, the results indicate that this effect is notably stronger in the period after IT than in the period before IT, which particularly applies for Australia, New Zealand, Japan and Korea. As for Indonesia, the impact of inflation uncertainty to real GDP growth is very similar in both subsamples, because expectations about high inflation in Indonesia are well-rooted. The conclusion indicates that if country pursue reliable anti-inflationary policy, output growth can be affected relatively significantly by an excess inflation uncertainty. However, this is not the case in the systems, which are not based on a prudent and well-established anti-inflationary policy, such as Indonesian.

Keywords: inflation uncertainty; GDP; Bayesian quantile regression; wavelet; Asia-Pacific countries (search for similar items in EconPapers)
JEL-codes: C11 C21 E23 E31 (search for similar items in EconPapers)
Date: 2020
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Handle: RePEc:fau:fauart:v:70:y:2020:i:5:p:461-486