Open AccessRelationship between inflation and inflation uncertainty: The case of Serbia
Author(s) -
Zorica Mladenović
Publication year - 2009
Publication title -
yugoslav journal of operations research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.221
H-Index - 21
eISSN - 1820-743X
pISSN - 0354-0243
DOI - 10.2298/yjor0901171m
Subject(s) - inflation (cosmology) , economics , econometrics , granger causality , inflation rate , real interest rate , autoregressive conditional heteroskedasticity , indexation , causality (physics) , macroeconomics , monetary policy , volatility (finance) , physics , quantum mechanics , theoretical physics
The purpose of this paper is to examine the relationship between inflation and inflation uncertainty in the Serbian economy, being particularly vulnerable to shocks in inflation rate, during transition period 2001 - 2007. Based on monthly data several GARCH specifications are estimated to provide the measure for inflation uncertainty. Derived variables are then included into VAR model to test for Granger-causality between inflation and its uncertainty. Models that consider only permanent and transitory components of prices are also estimated to investigate the inflation-uncertainty relationship in the long and in the short run. The main conclusion of the paper is that high inflation invokes high uncertainty, while high uncertainty negatively affects the level of inflation at long horizon