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      • Department of Economics
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      Inflation and inflation uncertainty: a dynamic framework

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      Author
      Berument, Hakan
      Yalcin, Y.
      Yildirim J.
      Date
      2012
      Source 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
      Article
      Item 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
      Inflation
      Inflation uncertainty
      Stochastic volatility models
      Dynamic effects
      Dynamic framework
      Dynamic method
      Empirical findings
      Explanatory variables
      GARCH models
      Stochastic volatility
      Time-periods
      Physics
      Economic analysis
      Permalink
      http://hdl.handle.net/11693/21295
      Published Version (Please cite this version)
      http://dx.doi.org/10.1016/j.physa.2012.05.003
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