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Spillover Effects of Real and Nominal Uncertainties in India

B. Balaji (), S. Raja Sethu Durai and M. Ramachandran
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B. Balaji: Pondicherry University
S. Raja Sethu Durai: Pondicherry University
M. Ramachandran: Pondicherry University

Journal of Quantitative Economics, 2018, vol. 16, issue 1, 143-162

Abstract: Abstract This paper examines the spillover effects and the causality between inflation, output growth and its uncertainties for India. Using monthly data for the period from April 1980 to April 2011, we estimated a bi-variate GARCH in mean with BEKK representations. This study differs from the earlier works where the parameters in the BEKK representations are estimated individually and the inferences are drawn on the basis of the individual lagged variance, covariance, and error terms from the respective equations. The empirical evidence suggests that inflation uncertainty seems to have significant negative impact on output growth and positive impact on output uncertainty and there is a positive influence of output uncertainty on the inflation. More importantly, there are spillovers and volatility transmission effects between the macroeconomic uncertainties where the volatility in output growth is significantly influenced by the shocks and volatility in inflation.

Keywords: Macroeconomic uncertainties; Inflation; Growth; BEKK-GARCH in mean (search for similar items in EconPapers)
JEL-codes: E32 O12 C32 E52 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:spr:jqecon:v:16:y:2018:i:1:d:10.1007_s40953-017-0108-1