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DOES THE MAGNITUDE OF THE EFFECT OF INFLATION UNCERTAINTY ON OUTPUT GROWTH DEPEND ON THE LEVEL OF INFLATION?
Author(s) -
CHANG KUANGLIANG,
HE CHIWEI
Publication year - 2010
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.1467-9957.2009.02162.x
Subject(s) - inflation (cosmology) , economics , bivariate analysis , indexation , economic stability , real interest rate , keynesian economics , econometrics , monetary policy , monetary economics , physics , mathematics , statistics , theoretical physics
A bivariate Markov regime switching model is employed to verify whether the relationship between inflation and inflation uncertainty, or the negative effects of inflation and inflation uncertainty on output growth, vary with the level of inflation. Inflation and inflation uncertainty are positively correlated in the high‐inflation regime. In contrast, in the low‐inflation regime, the direct effect of inflation on output growth is insignificant, but the indirect negative effect on growth via inflation uncertainty is highly significant. The negative influence in a high‐inflation regime is 2.664 times greater than that in a low‐inflation regime.