Nonlinearities and the nexus between inflation and inflation uncertainty in Egypt: New evidence from wavelets transform framework

Jamal Bouoiyour () and Refk Selmi

MPRA Paper from University Library of Munich, Germany

Abstract: How does inflation uncertainty interact with inflation rate? The purpose of this article is to assess this question in Egypt in a wavelets transform framework. We investigate the direction of causality in the relationship inflation-inflation uncertainty by combining component GARCH model, wavelets decomposition and scale-by-scale nonlinear causality test. We find a strong evidence in favor of Friedman-ball hypothesis in both time domain and the different frequencies. This study succeeds to resolve the inconsistencies and to point a robust nonlinear effect of inflation on inflation uncertainty, which is more intense at high frequency bands than at low ones. We attribute this result to the complexity in predicting how strongly and how quickly prices will respond to monetary policy, the asymmetry between inflation booms and recessions, the incidence of exogenous shocks, the co-movement of permanent shocks with inflation and the downward expectations of monetary authorities.

Keywords: Inflation; inflation uncertainty; GARCH; wavelets; nonlinear causality. (search for similar items in EconPapers)
JEL-codes: C1 C6 E3 (search for similar items in EconPapers)
Date: 2013-11
New Economics Papers: this item is included in nep-ara, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/55721/1/MPRA_paper_55721.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:52414

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