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Inflation, Growth and their Uncertainties: A Bivariate GARCH Evidence for Iran

Author

Listed:
  • Mohsen Mehrara

    (Associate Professor, Faculty of Economics, University of Tehran, Iran)

  • Hossein Tavakolian

    (Ph.D. Student in Economics, Faculty of Economics, University of Tehran, Iran)

Abstract

Using a bivariate GARCH model, we investigate the causal relationships between inflation, growth, inflation uncertainty (nominal uncertainty) and output uncertainty (real uncertainty) for seasonally adjusted quarterly data in Iran. Our results indicate that increased inflation is associated with higher nominal uncertainty. Further, we found that higher output uncertainty increases both inflation and growth. Increased growth, in turn, is associated with higher real uncertainty. We found no strong evidence in favor of other causal relationships which we have tested. These results support the argument of a price stability objective for the monetary authority. To mitigate the harmful effects of real uncertainty, Iran should take policy measures to withstand adverse domestic and external shocks and lessen their exposure to the volatility.

Suggested Citation

  • Mohsen Mehrara & Hossein Tavakolian, 2010. "Inflation, Growth and their Uncertainties: A Bivariate GARCH Evidence for Iran," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 15(1), pages 83-100, winter.
    • Handle: RePEc:eut:journl:v:15:y:2010:i:1:p:83
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    References listed on IDEAS

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    Cited by:

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