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The effects of real and nominal uncertainty on inflation and output growth: some garch‐m evidence
Author(s) -
Grier Kevin B.,
Perry Mark J.
Publication year - 2000
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/(sici)1099-1255(200001/02)15:1<45::aid-jae542>3.0.co;2-k
Subject(s) - economics , inflation (cosmology) , autoregressive conditional heteroskedasticity , econometrics , real interest rate , real gross domestic product , sample (material) , nominal interest rate , inflation rate , monetary policy , macroeconomics , volatility (finance) , chemistry , physics , chromatography , theoretical physics
In this paper we use GARCH‐M methods to test four hypotheses about the effects of real and nominal uncertainty on average inflation and output growth in the United States from 1948 to 1996. We find no evidence that higher inflation uncertainty or higher output growth uncertainty raises the average inflation rate. We also find no support for the idea that more risky output growth is associated with a higher average real growth rate. Our key result is that in a variety of models and sample periods, inflation uncertainty significantly lowers real output growth. Copyright © 2000 John Wiley & Sons, Ltd.