Premium
Macroeconomic Uncertainty and Performance in Asian Countries *
Author(s) -
Bredin Don,
Elder John,
Fountas Stilianos
Publication year - 2009
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2009.00508.x
Subject(s) - economics , bivariate analysis , autoregressive conditional heteroskedasticity , inflation (cosmology) , econometrics , impulse response , macroeconomics , monetary economics , volatility (finance) , mathematics , theoretical physics , mathematical analysis , statistics , physics
We use a very general bivariate GARCH‐M model and quarterly data for five Asian countries to test for the impact of real and nominal macroeconomic uncertainty on inflation and output growth. We conclude the following. First, in the majority of countries uncertainty regarding the output growth rate is related negatively to the average growth rate. Secondly, contrary to expectations, inflation uncertainty in most cases does not harm the output growth performance of an economy. Thirdly, inflation and output uncertainty have a mixed effect on inflation. Consistent results are found using the VAR‐GARCH‐M approach to investigate the dynamic relationship between inflation and output growth using impulse response functions. This evidence implies that macroeconomic uncertainty may even improve macroeconomic performance, i.e. raise output growth and reduce inflation. Our empirical results highlight important differences with those for industrialized countries.