Inflation and Inflation Uncertainty in the Euro Area

Guglielmo Maria Caporale, Luca Onorante and Paolo Paesani ()

No 2720, CESifo Working Paper Series from CESifo

Abstract: This paper estimates a time-varying AR-GARCH model of inflation producing measures of inflation uncertainty for the euro area, and investigates the linkages between them in a VAR framework, also allowing for the possible impact of the policy regime change associated with the start of EMU in 1999. The main findings are as follows. Steady-state inflation and inflation uncertainty have declined steadily since the inception of EMU, whilst short-run uncertainty has increased, mainly owing to exogenous shocks. A sequential dummy procedure provides further evidence of a structural break coinciding with the introduction of the euro and resulting in lower long-run uncertainty. It also appears that the direction of causality has been reversed, and that in the euro period the Friedman-Ball link is empirically supported, implying that the ECB can achieve lower inflation uncertainty by lowering the inflation rate.

Keywords: inflation; inflation uncertainty; time-varying parameters; GARCH models; ECB; EMU (search for similar items in EconPapers)
JEL-codes: C22 E31 E52 (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Inflation and inflation uncertainty in the euro area (2012)
Working Paper: Inflation and inflation uncertainty in the euro area (2010)
Working Paper: Inflation and Inflation Uncertainty in the Euro Area (2010)
Working Paper: Inflation and Inflation Uncertainty in the Euro Area (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2720

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