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MACROECONOMIC UNCERTAINTY AND MACROECONOMIC PERFORMANCE: ARE THEY RELATED?
Author(s) -
BREDIN DON,
FOUNTAS STILIANOS
Publication year - 2005
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2005.00461.x
Subject(s) - economics , bivariate analysis , inflation (cosmology) , econometrics , heteroscedasticity , autoregressive model , macroeconomics , mathematics , statistics , physics , theoretical physics
We use a very general bivariate generalized autoregressive conditional heteroskedasticity‐in‐mean model and G7 monthly data covering the 1957–2003 period to test for the impact of real and nominal macroeconomic uncertainty on inflation and output growth. Our evidence supports a number of important conclusions. First, in most countries output growth uncertainty is a positive determinant of the output growth rate. Second, there is mixed evidence regarding the effect of inflation uncertainty on inflation and output growth. Hence, contrary to popular belief, uncertainty about the inflation rate is not necessarily detrimental to economic growth but in some cases it may also enhance growth. Finally, there is mixed evidence on the effect of output uncertainty on inflation. In sum, our results indicate that macroeconomic uncertainty may even improve macroeconomic performance.