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Causal relations between inflation and inflation uncertainty—Cross sectional evidence in favour of the Friedman–Ball hypothesis

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  • Hartmann, Matthias
  • Herwartz, Helmut

Abstract

We test for causality between inflation and its associated uncertainty by means of both in-sample and out-of-sample modelling. Our findings indicate that the impact of inflation on inflation uncertainty is more pronounced than the reverse causal effect.

Suggested Citation

  • Hartmann, Matthias & Herwartz, Helmut, 2012. "Causal relations between inflation and inflation uncertainty—Cross sectional evidence in favour of the Friedman–Ball hypothesis," Economics Letters, Elsevier, vol. 115(2), pages 144-147.
    • Handle: RePEc:eee:ecolet:v:115:y:2012:i:2:p:144-147
    DOI: 10.1016/j.econlet.2011.12.036
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    References listed on IDEAS

    as
    1. Canova, Fabio, 2007. "G-7 Inflation Forecasts: Random Walk, Phillips Curve Or What Else?," Macroeconomic Dynamics, Cambridge University Press, vol. 11(1), pages 1-30, February.
    2. Ser-Huang Poon & Clive W.J. Granger, 2003. "Forecasting Volatility in Financial Markets: A Review," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 478-539, June.
    3. Soosung Hwang & Pedro L. Valls Pereira, 2006. "Small sample properties of GARCH estimates and persistence," The European Journal of Finance, Taylor & Francis Journals, vol. 12(6-7), pages 473-494.
    4. Matthias Hartmann & Helmut Herwartz, 2009. "Did the introduction of the euro impact on inflation uncertainty? - An empirical assessment," European Economy - Economic Papers 2008 - 2015 396, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. Daal, Elton & Naka, Atsuyuki & Sanchez, Benito, 2005. "Re-examining inflation and inflation uncertainty in developed and emerging countries," Economics Letters, Elsevier, vol. 89(2), pages 180-186, November.
    6. Ball, Laurence, 1992. "Why does high inflation raise inflation uncertainty?," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 371-388, June.
    7. Helmut Herwartz, 2010. "A note on model selection in (time series) regression models - general-to-specific or specific-to-general?," Applied Economics Letters, Taylor & Francis Journals, vol. 17(12), pages 1157-1160.
    8. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-472, June.
    9. Davis, George K & Kanago, Bryce E, 2000. "The Level and Uncertainty of Inflation: Results from OECD Forecasts," Economic Inquiry, Western Economic Association International, vol. 38(1), pages 58-72, January.
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    More about this item

    Keywords

    Inflation uncertainty; Inflation forecasting; Granger causality;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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