Risk Matters: The Impact of Nominal Uncertainty in Chile

Luis Ceballos and Damian Romero

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: In this paper we analyze the empirical relationship between inflation and economic growth in both level as well as its uncertainty components based in a bivariate GARCH model for Chilean economy. Then we proceed to analyze the economic causality between level/uncertainty for both nominal and real variables. Our main finding suggests that nominal uncertainty plays a relevant role in the economy as a channel through which economic growth is affected. Finally, we compare some empirical benchmarks with the nominal uncertainty measure derived from the model. We conclude that the information reported by the Economic Expectation Survey (regarding the dispersion for the one-month expected inflation question), presents the higher correlation with our uncertainty measure among all benchmarks evaluated.

Date: 2014-08
New Economics Papers: this item is included in nep-lam
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:741

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