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Inflation and Inflation Uncertainty in Chile

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  • Igal Magendzo

Abstract

A large part of the literature on the costs of inflation suggests that the most adverse effect of inflation arises from the inability of agents in predicting inflation. This paper evaluates whether inflation uncertainty is related to the level of inflation in Chile. Using time-series techniques, the paper constructs an inflation uncertainty measure and investigates its relation with inflation. It finds that higher inflation is positively correlated with inflation uncertainty and that inflation causes (precedes in time) uncertainty. The evidence reported here shows that inflation uncertainty has decreased persistently since 1993, currently attaining the lowest levels in Chilean history since 1934. The paper concludes that a key henefit from controlling inflation in Chile has been the reduction in inflation uncertainty.

Suggested Citation

  • Igal Magendzo, 1998. "Inflation and Inflation Uncertainty in Chile," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 1(1), pages 029-042, August.
    • Handle: RePEc:chb:bcchec:v:1:y:1998:i:1:p:29-42
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    References listed on IDEAS

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