Inflation uncertainty revisited: a proposal for robust measurement

Christian Grimme (), Steffen Henzel and Elisabeth Wieland

Empirical Economics, 2014, vol. 47, issue 4, 1497-1523

Abstract: Any measure of unobserved inflation uncertainty relies on specific assumptions which are most likely not fulfilled completely. This calls into question whether an individual measure delivers a reliable signal. To reduce idiosyncratic measurement error, we propose using common information contained in different measures derived from survey data, a variety of forecast models, and volatility models. We show that all measures are driven by a common component, which constitutes an indicator for inflation uncertainty. Moreover, our results suggest that using only one individual disagreement measure may be misleading, particularly during turbulent times. Finally, we study the Friedman–Ball hypothesis. Using the indicator, we show that higher inflation is followed by higher uncertainty. By contrast, we obtain contradictory results for the individual measures. We also document that, after an inflationary shock, uncertainty decreases in the first two months, which is traceable to the energy component in CPI inflation. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Inflation uncertainty; Inflation; Survey data; Stochastic volatility; GARCH; Principal component analysis; C53; E31; E37 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00181-013-0789-z (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Inflation uncertainty revisited: A proposal for robust measurement (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:empeco:v:47:y:2014:i:4:p:1497-1523

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-013-0789-z

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().