Inflation and inflation uncertainty in the euro area

Guglielmo Maria Caporale, Luca Onorante and Paolo Paesani ()

No 1229, Working Paper Series from European Central Bank

Abstract: This paper 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. Steadystate inflation and inflation uncertainty have declined steadily since the inception of EMU, whilst short-run uncertainty has increased, mainly owing to exogenous shocks. 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. JEL Classification: E31, E52, C22

Keywords: ECB; EMU; GARCH models; inflation; Inflation Uncertainty; time-varying parameters (search for similar items in EconPapers)
Date: 2010-07
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Note: 412615
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Inflation and inflation uncertainty in the euro area (2012)
Working Paper: Inflation and Inflation Uncertainty in the Euro Area (2010)
Working Paper: Inflation and Inflation Uncertainty in the Euro Area (2009)
Working Paper: Inflation and Inflation Uncertainty in the Euro Area (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20101229

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