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Inflation and Inflation-Uncertainty in India: The Policy Implications of the Relationship

Abdur Chowdhury ()

No 2011-04, Working Papers and Research from Marquette University, Center for Global and Economic Studies and Department of Economics

Abstract: Inflation and its related uncertainty can impose costs on real economic output in any economy. This paper analyzes the relationship between inflation and inflation uncertainty in India. Initial estimates show the inflation rate to be a stationary process. The maximum likelihood estimates from the GARCH model reveal strong support for the presence of a positive relationship between the level of inflation and its uncertainty. The Granger causality results indicate a feedback between inflation and uncertainty. With Granger causality running both ways, the Friedman-Ball and Cukierman-Meltzer hypotheses hold simultaneously in India. It provides strong support to the notion of an opportunistic central bank in India.

Keywords: inflation; uncertainty; India (search for similar items in EconPapers)
JEL-codes: E31 E58 O53 (search for similar items in EconPapers)
Date: 2011-08
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Journal Article: Inflation and inflation-uncertainty in India: the policy implications of the relationship (2014) Downloads
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