IDEAS home Printed from https://ideas.repec.org/a/ren/journl/v7y2015i1p3-23.html
   My bibliography  Save this article

Effects of Inflation on Output Gap: A MRS-IV Approach

Author

Listed:
  • Mustafa Caglayan

    (Heriot–Watt University, UK)

  • Ozge Kandemir Kocaaslan

    (Hacettepe University, Ankara, Turkey)

  • Konstantinos Mouratidis

    (University of Sheffield, UK)

Abstract

In this paper, we propose an analytical framework to explore the level and volatility effects of inflation on the output gap. Using quarterly US data over 1977:q2-2009:q4, we then examine the empirical implications of the model by implementing an instrumental variables Markov regime switching approach. We show that inflation uncertainty has a negative and regime dependent impact on the output gap but the level of inflation does not have any such effect. Our empirical investigation also provides evidence that the US economy is moving towards a period of turmoil before the recent financial crisis was imminent. The results are robust to the use of alternative measures of inflation uncertainty.

Suggested Citation

  • Mustafa Caglayan & Ozge Kandemir Kocaaslan & Konstantinos Mouratidis, 2015. "Effects of Inflation on Output Gap: A MRS-IV Approach," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 7(1), pages 3-23, June.
    • Handle: RePEc:ren:journl:v:7:y:2015:i:1:p:3-23
    as

    Download full text from publisher

    File URL: http://www.rofea.org/index.php?journal=journal&page=article&op=view&path%5B%5D=203&path%5B%5D=131
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Output gap; inflation uncertainty; Markov-switching modeling; instrumental variables; endogeneity;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ren:journl:v:7:y:2015:i:1:p:3-23. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Jerzy (Jurek) Konieczny (email available below). General contact details of provider: http://www.rcfea.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.