Author URLs
Document Type
Article
Publication Date
11-2011
Subject: LCSH
Inflation (Finance)
JEL Classification
C22, E31
Disciplines
Economics
Abstract
This study examines the dynamic relationship between monthly inflation and inflation uncertainty in Japan, the US and the UK by employing linear and nonlinear Granger causality tests for the 1957:01-2006:10 period. Using a generalised autoregressive conditional heteroskedasticity (GARCH) model to generate a measure of inflation uncertainty, the empirical evidence from the linear and nonlinear Granger causality tests indicate a bi-directional causality between the series. The estimates from both the linear vector autoregressive (VAR) and nonparametric regression models show that higher inflation rates lead to greater inflation uncertainty for all countries as predicted by Friedman (1977). Although VAR estimates imply no significant impact, except for Japan, nonparametric estimates show that inflation uncertainty raises average inflation in all countries, as suggested by Cukierman and Meltzer (1986). Thus, inflation and inflation uncertainty have a positive predictive content for each other, supporting the Friedman and Cukierman-Meltzer hypotheses, respectively. JEL classification codes: C22, E31.
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
DOI
10.1016/S1514-0326(11)60015-9
Repository Citation
Cakan, Esin; Ozdemir, Zeynel Abidin; and Balcilar, Mehmet, "On the Nonlinear Causality Between Inflation and Its Uncertainty in G-3 Countries" (2011). Economics & Business Analytics Faculty Publications. 4.
https://digitalcommons.newhaven.edu/economics-facpubs/4
Publisher Citation
Cakan, Esin (with Z.A.Ozdemir and M. Balcilar). “On the nonlinear causality between inflation and its uncertainty in G-3 countries," Journal of Applied Economics, Vol. XIV, No. 2, (November 2011), 269-296.
Comments
NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Applied Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Applied Economics 14, 2, Nov. 2011] DOI:10.1016/S1514-0326(11)60015-9