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The Inflation‐Output Variability Trade‐off: OECD Evidence

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  • Jim Lee

Abstract

This article employs a multivariate GARCH model to empirically estimate a possible trade‐off between output variability and inflation volatility in light of OECD data over the 1984–2001 period. Statistical support for the hypothesized volatility trade‐off is equivocal across countries. The mixed findings can be associated with central banks' varying monetary policy responses to exogenous shocks. The trade‐off estimates are also found to be consistent with earlier studies that reveal different degrees of central bank commitment to price vis‐à‐vis output stability. (JEL E30, E58, C32)

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  • Jim Lee, 2004. "The Inflation‐Output Variability Trade‐off: OECD Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 22(3), pages 344-356, July.
    • Handle: RePEc:bla:coecpo:v:22:y:2004:i:3:p:344-356
    DOI: 10.1093/cep/byh025
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    References listed on IDEAS

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    6. Stephen G. Cecchetti & Michael Ehrmann, 2002. "Does Inflation Targeting Increase Output Volatility?: An International Comparison of Policymakers' Preferences and Outcomes," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.),Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 9, pages 247-274, Central Bank of Chile.
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    Cited by:

    1. Sweidan, Osama D., 2011. "Inflation variability between central bank's preferences and the structure of the economy: A note," Economic Modelling, Elsevier, vol. 28(1), pages 630-636.
    2. Zhou, Wei-Xing & Sornette, Didier, 2007. "Lead-lag cross-sectional structure and detection of correlated–anticorrelated regime shifts: Application to the volatilities of inflation and economic growth rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 380(C), pages 287-296.

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    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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