A Reexamination of Friedman-Ball’s Hypothesis in Slovakia - Evidence from Wavelet Analysis

Ran Tao (), Zheng-Zheng Li (), Xiao-Lin Li and Chi-Wei Su ()
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Ran Tao: Qingdao Municipal Center for Disease Control & Preventation, No. 175 Shandong Rd., Qingdao, Shandong, China
Zheng-Zheng Li: Ocean University of China, School of Finance, No. 238 Songling Rd, Qingdao, Shandong, China
Xiao-Lin Li: Ocean University of China, School of Finance, No. 238 Songling Rd, Qingdao, Shandong, China
Chi-Wei Su: Qingdao University, School of Economics, No. 308 Ningxia Rd., Qingdao, Shandong, China

Journal for Economic Forecasting, 2018, issue 4, 41-54

Abstract: This study investigates the bilateral co-movements between inflation and inflation uncertainty in a dynamic framework for Slovakia. Co-movements between variables are varying over time and show a complex characteristic in that they mostly occur in periods during which the macroeconomy or financial markets suffered severe shocks. Therefore, we employ wavelet analysis to detect the bilateral co-movements in both time and frequency domains based on Friedman and Ball’s (1992) hypothesis. The empirical results show that there is a positive relationship between inflation and inflation uncertainty, thus highlighting that inflation precedes uncertainty in the short term and has the opposite causality in the long term. This conclusion is in accordance with the previous hypotheses of Friedman and Ball (1992) and Cukierman and Meltzer (1986), which means that higher inflation will increase the inflation uncertainty and vice versa. Therefore, the Slovak monetary authorities should stabilize the inflation uncertainty by adjusting the inflation level.

Keywords: inflation; inflation uncertainty; wavelet analysis (search for similar items in EconPapers)
JEL-codes: C22 E31 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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