Relationships between inflation, output growth, and uncertainty in the era of inflation stabilization: a multicountry study

Article Type

Research Article

Publication Title

Empirical Economics

Abstract

Since the 1990s, central banks in many industrialized and developing countries have adopted similar policy strategies for stabilizing inflation. In this context, it has been argued that during common policy periods, the relationships between inflation, output growth, and their uncertainties are stable and more uniform across countries. We intend to verify this for 19 countries using both linear and non-linear bivariate GARCH-in-mean models. According to our findings, the non-linear regime-dependent model performs better in most of the sampled countries. It has been observed that inflation uncertainty has a significant impact on inflation, particularly in developing countries. Nominal and real uncertainty affect output growth primarily during periods of economic contraction. Although nominal uncertainty inhibits output growth, real uncertainty has mixed effects. In most countries, negative growth shocks result in greater output growth volatility than positive growth shocks. Furthermore, in some countries, output growth significantly increases inflation only in high-inflation regimes.

First Page

623

Last Page

650

DOI

10.1007/s00181-023-02473-z

Publication Date

2-1-2024

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