Inflation and inflation uncertainty in the Euro Area

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2720

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Monetary Policy ; Single Equation Models; Single Variables: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
• Subject: inflation ; inflation uncertainty ; time-varying parameters ; GARCH models ; ECB, EMU ; Inflationserwartung ; Inflation ; Risiko ; Europäischer Währungsverbund ; Zentralbank ; VAR-Modell ; ARCH-Modell ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Caporale, Guglielmo Maria ; Onorante, Luca ; Paesani, Paolo
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/30621
• Last update: 10.03.2025, 11:45 AM CET