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Inflation, Output Growth, and Nominal and Real Uncertainty: Empirical Evidence for the G7

Stilianos Fountas () and Menelaos Karanasos ()
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Menelaos Karanasos: Department of Economics, National University of Ireland, Galway

No 64, Working Papers from National University of Ireland Galway, Department of Economics

Abstract: We use univariate GARCH models of inflation and output growth and monthly data on inflation and output growth in the G7 for the 1960-2000 period to examine all possible causal relationships between inflation, output growth, real, and nominal uncertainty, and hence test for a number of economic theories. We derive a number of important results: First, we find strong evidence that inflation is a negative determinant of output growth. This effect works both directly and indirectly, i.e., via the inflation uncertainty channel. Second, we obtain evidence supporting the Cukierman-Meltzer hypothesis in most countries. In Japan the stabilisation hypothesis seems to hold. Finally, in most countries we find that output growth uncertainty is a positive determinant of the growth rate as predicted by Black (1987).

Keywords: Inflation; Output growth; uncertainity; Granger-causality GARCH. (search for similar items in EconPapers)
JEL-codes: C22 E32 (search for similar items in EconPapers)
Date: 2002, Revised 2002
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Journal Article: Inflation, output growth, and nominal and real uncertainty: Empirical evidence for the G7 (2007) Downloads
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