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A GARCH Model of Inflation and Inflation Uncertainty with Simultaneous Feedback

Stilianos Fountas (), Menelaos Karanasos () and Marika Karanassou ()

No 414, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: We examine the relationship between inflation and inflation uncertainty using a GARCH model that allows for simultaneous feedback between the conditional mean and variance of inflation. We also derive a number of theoretical econometric results and illustrate the relevance of these results with an empirical example of the US monthly inflation process. Our results show that there is strong evidence in favour of a positive bi-directional relationship between inflation and inflation uncertainty in agreement with the predictions of economic theory.

Keywords: Inflation; Inflation uncertainty; GARCH-M (search for similar items in EconPapers)
JEL-codes: C2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mon
Date: 2000-05
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Working Paper: A GARCH Model of Inflation and Inflation Uncertainty with Simultaneous Feedback (2000) Downloads
Working Paper: A GARCH Model of Inflation and Inflation Uncertainty with Simultaneous Feedback (2000) Downloads
Working Paper: A GARCH Model of Inflation and Inflation Uncertainty with Simultaneous Feedback Downloads
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