Inflation and Inflation Uncertainty in the Euro Area
Copyright policy )Inflation and Inflation Uncertainty in the Euro Area
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.
- Roma Tre University Italy
- Leibniz Association Germany
- University of Rome Tor Vergata Italy
- European University Institute Italy
- German Institute for Economic Research Germany
VAR-Modell, 330, Europäischer Währungsverbund, ARCH-Modell, inflation, inflation uncertainty, time-varying parameters, GARCH models, ECB, EMU, Zentralbank, Inflation uncertainty, ECB, EMU, GARCH Models, inflation, Inflation Uncertainty, time-varying parameters, GARCH Models, inflation uncertainty, Risiko, inflation, generalized autoregressive conditional heteroskedasticity models, dewey330, E52, E31, ECB, CICM discussion papers, EMU, ECB, EMU, ddc:330, time-varying parameters, Inflation Uncertainty, GARCH models, Europäisches Währungssystem, Inflation, Economic and Monetary Union of the European Union, European Central Bank, Inflation, inflation uncertainty, time-varying parameters, GARCH models, ECB, EMU, Time-varying parameters, Inflationserwartung, EU-Staaten, Centre for International Capital Markets discussion papers, C22, jel: jel:C22, jel: jel:E52, jel: jel:E31
VAR-Modell, 330, Europäischer Währungsverbund, ARCH-Modell, inflation, inflation uncertainty, time-varying parameters, GARCH models, ECB, EMU, Zentralbank, Inflation uncertainty, ECB, EMU, GARCH Models, inflation, Inflation Uncertainty, time-varying parameters, GARCH Models, inflation uncertainty, Risiko, inflation, generalized autoregressive conditional heteroskedasticity models, dewey330, E52, E31, ECB, CICM discussion papers, EMU, ECB, EMU, ddc:330, time-varying parameters, Inflation Uncertainty, GARCH models, Europäisches Währungssystem, Inflation, Economic and Monetary Union of the European Union, European Central Bank, Inflation, inflation uncertainty, time-varying parameters, GARCH models, ECB, EMU, Time-varying parameters, Inflationserwartung, EU-Staaten, Centre for International Capital Markets discussion papers, C22, jel: jel:C22, jel: jel:E52, jel: jel:E31
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