Inflation and inflation uncertainty: a dynamic framework
Author
Berument, Hakan
Yalcin, Y.
Yildirim J.
Date
2012Source Title
Physica A: Statistical Mechanics and its Applications
Print ISSN
0378-4371
Electronic ISSN
1873-2119
Publisher
Elsevier BV
Volume
391
Issue
20
Pages
4816 - 4826
Language
English
Type
ArticleItem Usage Stats
128
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104
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Abstract
This paper aims to investigate the direct relationship between inflation and inflation uncertainty by employing a dynamic method for the monthly country-region-place United States data for the time period 1976-2007. While the bulk of previous studies has employed GARCH models in investigating the link between inflation and inflation uncertainty, in this study Stochastic Volatility in Mean models are used to capture the shocks to inflation uncertainty within a dynamic framework. These models allow researchers to assess the dynamic effects of innovations in inflation as well as inflation volatility on inflation and inflation volatility over time, by incorporating the unobserved volatility as an explanatory variable in the mean (inflation) equation. Empirical findings suggest that innovations in inflation volatility increases inflation. This evidence is robust across various definitions of inflation and different sub-periods. © 2012 Elsevier B.V. All rights reserved.
Keywords
InflationInflation uncertainty
Stochastic volatility models
Dynamic effects
Dynamic framework
Dynamic method
Empirical findings
Explanatory variables
GARCH models
Stochastic volatility
Time-periods
Physics
Economic analysis