Asymmetric effects of inflation shocks on inflation uncertainty

Barbara Caporale and Tony Caporale

Atlantic Economic Journal, 2002, vol. 30, issue 4, 385-388

Abstract: The empirically documented regularity that dis-inflationary shocks are associated with larger output changes than are positive shocks presents an interesting puzzle to macroeconomists. This paper presents, and empirically supports, a new explanation for this asymmetry. The authors show, using a TARCH model, that negative inflationary shocks result in greater inflation uncertainty than positive shocks. As Friedman [1977] argues, and a body of empirical evidence demonstrates, inflation uncertainty leads to lower output growth. Drawing on this explanation, this essay points to an avenue by which the output asymmetry of inflationary shocks can be explained. Copyright International Atlantic Economic Society 2002

Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:kap:atlecj:v:30:y:2002:i:4:p:385-388

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DOI: 10.1007/BF02298781

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