Inflation uncertainty

Apostolos Serletis and Libo Xu
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Libo Xu: Lakehead University

Empirical Economics, 2024, vol. 66, issue 5, No 1, 1903-1920

Abstract: Abstract We use a Markov regime switching structural GARCH-in-Mean VAR model for the inflation rate, the output gap, and a short-term nominal interest rate, to investigate the relationship between inflation uncertainty and economic activity in the USA. We find that inflation uncertainty has a negative and statistically significant effect on the output gap. Also, inflation shocks have a negative effect on the output gap, irrespective of whether they are positive or negative, with the asymmetry being caused by the negative effects of inflation uncertainty.

Keywords: Markov regime-switching; New Keynesian model; Multivariate GARCH (search for similar items in EconPapers)
JEL-codes: C32 E52 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00181-023-02512-9

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