The relation between the level and uncertainty of inflation

Esther Ruiz () and Fernando Lorenzo
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Fernando Lorenzo: Departamento de Economía, Facultad de Ciencias Sociales, Universidad de Uruguay. Centro de Investigaciones Económicas (CINVE-Uruguay)

No 698, Documentos de Trabajo (working papers) from Department of Economics - dECON

Abstract: This paper focus on the problems faced in the empirical investigation of the relation between the level and volatility of inflation. Monthly inflation series seem to be affected by both the presence of outliers and conditional heteroscedasticity. First, the paper illustrates the implications that the presence of outliers and conditional heteroscedasticity have on the usual residual diagnostics. Then, estimates of the level and volatility of inflation are obtained for each of the countries of the G-7 group. Empirical evidence for the majority of the inflation series for these countries indicates both the presence of outliers and conditional heteroscedasticity, and that estimates of the latter are sensitive to the presence of outliers. Finally, the temporal dependence found in the conditional variance is enduring.

Keywords: Conditional Heteroscedasticity; Diagnostic; Inflation; Outlier; Stochastic Volatility. (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Pages: 22 pages
Date: 1998-12
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Persistent link: https://EconPapers.repec.org/RePEc:ude:wpaper:0698

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