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Inflation and inflation uncertainty in the euro area

Guglielmo Maria Caporale, Luca Onorante () and Paolo Paesani ()

Empirical Economics, 2012, vol. 43, issue 2, 597-615

Abstract: This article estimates a time-varying AR-GARCH model of inflation producing measures of inflation uncertainty for the euro area, and investigates their linkages in a VAR framework, also allowing for the possible impact of the policy regime change associated with the start of EMU in 1999. The main findings are as follows. Steady-state inflation and inflation uncertainty have declined steadily since the inception of EMU, whilst short-run uncertainty has stabilised. A sequential dummy procedure provides further evidence of a structural break coinciding with the introduction of the euro and resulting in lower long-run uncertainty. It also appears that the direction of causality has been reversed, and that in the euro period the Friedman-Ball link is empirically supported, consistently with the idea that the ECB can achieve lower inflation uncertainty by lowering the inflation rate. Copyright Springer-Verlag 2012

Keywords: Inflation; Inflation uncertainty; Time-varying parameters; GARCH models; ECB; EMU; E31; E52; C22 (search for similar items in EconPapers)
Date: 2012
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Related works:
Working Paper: Inflation and inflation uncertainty in the euro area (2010) Downloads
Working Paper: Inflation and Inflation Uncertainty in the Euro Area (2009) Downloads
Working Paper: Inflation and Inflation Uncertainty in the Euro Area (2009) Downloads
Working Paper: Inflation and Inflation Uncertainty in the Euro Area Downloads
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