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The Relationship between Inflation and Inflation Uncertainty in Emerging Market Economies
Author(s) -
Thornton John
Publication year - 2007
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2007.tb00808.x
Subject(s) - economics , inflation (cosmology) , heteroscedasticity , econometrics , granger causality , autoregressive conditional heteroskedasticity , emerging markets , causality (physics) , autoregressive model , monetary economics , macroeconomics , volatility (finance) , physics , quantum mechanics , theoretical physics
A standard Generalized Autoregressive Conditional Heteroskedastic (q,v) model is employed to construct a measure of monthly inflation uncertainty in 12 emerging market economies, and the relationship between inflation and inflation uncertainty is examined using Granger‐causality tests. The results suggest that higher inflation rates increased inflation uncertainty in all the economies, providing strong support for the Friedman hypothesis. The evidence on the effect of inflation uncertainty on average monthly inflation is more mixed, with increased inflation uncertainty leading to lower average inflation in Colombia, Israel, Mexico, and Turkey, consistent with the Holland hypothesis, but to higher average inflation in Hungary, Indonesia, and Korea, consistent with the hypothesis of Cukierman and Meltzer.