The Relationship Between Inflation, Output Growth, and Their Uncertainties: Evidence from Selected CEE Countries
EMERGING MARKETS FINANCE AND TRADE, vol.47, pp.5-20, 2011 (SSCI, Scopus)
- Publication Type: Article / Article
- Volume: 47
- Publication Date: 2011
- Doi Number: 10.2753/ree1540-496x4704s301
- Journal Name: EMERGING MARKETS FINANCE AND TRADE
- Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
- Page Numbers: pp.5-20
- Open Archive Collection: AVESIS Open Access Collection
- Hacettepe University Affiliated: Yes
Abstract
In this paper, we examine causal relationships between inflation rate, output growth rate, inflation uncertainty, and output uncertainty for ten Central and Eastern European transition countries. For this purpose, we estimate a bivariate GARCH model that includes output growth and inflation rates for each country. Then we use conditional standard deviations of inflation and output to proxy nominal and real uncertainty, respectively, and perform Granger causality tests. Our results suggest that inflation rate induces uncertainty about both inflation rate and output growth rate, which is detrimental to real economic activity. At the same time, we find that output growth rate reduces macroeconomic uncertainty in some countries. In addition, we also examine and discuss causal relationships between the remaining variables.