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Effect of inflation uncertainty, output uncertainty and oil price on inflation and growth in Australia

Author

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  • Girijasankar Mallik
  • Anis Chowdhury

Abstract

Purpose - The purpose of this paper is to determine the relationship between inflation, inflation uncertainty, growth and growth uncertainty for Australia. Design/methodology/approach - Multivariate EGARCH models has been used to estimate the relationship between inflation, inflation uncertainty, growth and growth uncertainty for Australia. Findings - Using quarterly data in multivariate EGARCH models, this study finds that both inflation uncertainty and output uncertainty have negative and significant effects on output growth. The paper also finds that, while inflation uncertainty has a positive and significant effect on inflation, output uncertainty has a negative and significant effect on inflation. The study uses a newly constructed oil price dummy as a control variable and finds that oil price changes significantly increase inflation uncertainty. The study also finds that inflation uncertainty and the inflation level have both declined since the adoption of a formal inflation‐targeting monetary policy in Australia. Research limitations/implications - Multivariate EGARCH model can be used to estimate the effects of inflation, inflation uncertainty, growth and growth uncertainty for cross‐country analysis. Originality/value - This is the first study of the effect of inflation uncertainty and growth uncertainty on inflation and growth in Australia using a newly constructed oil price dummy in a multivariate EGARCH framework.

Suggested Citation

  • Girijasankar Mallik & Anis Chowdhury, 2011. "Effect of inflation uncertainty, output uncertainty and oil price on inflation and growth in Australia," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 38(4), pages 414-429, September.
    • Handle: RePEc:eme:jespps:v:38:y:2011:i:4:p:414-429
    DOI: 10.1108/01443581111160879
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    8. Mustafa Caglayan & Ozge Kandemir & Kostas Mouratidis, 2011. "Real effects of inflation uncertainty in the US," Working Papers 2011002, The University of Sheffield, Department of Economics, revised Feb 2015.
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