are higher levels of inflation less predictable a state dependent conditional heteroscedasticity approach milton friedman proposed that there is a positive relationship between inflation and uncertainty about the future path of inflation in contrast to previous studies of this hypothesis we find strong statistical evidence that higher levels of inflation are less predictable although innovations in inflation are somewhat better predictors of future volatility than the actual level of inflation we argue that previous failures to find an inflation uncertainty relationship are due to two factors first none of the previous work directly tested friedman s hypothesis by including the level of inflation in the model of the conditional variance second these studies also used symmetric models which appears inconsistent with friedman s hypothesis our results are robust to different sample periods and to assumptions about the presence of a unit root in inflation to test the inflation uncertainty hypothesis we use state dependent models sdm s of conditional moments to estimate the time varying conditional v

inflation output growth and nominal and real uncertainty empirical evidence for the g7 abstract we use univariate garch models of inflation and output growth and monthly data for the g7 covering the 1957 2000 period to test for the causal effect of real and nominal macroeconomic uncertainty on inflation and output growth and the effect of inflation on inflation uncertainty our evidence supports a number of important conclusions first inflation is a positive determinant of uncertainty about inflation second output growth uncertainty is a positive determinant of the output growth rate third there is mixed evidence regarding the effect of inflation uncertainty on inflation and output growth hence uncertainty about the inflation rate is not necessarily detrimental to economic growth finally there is not much evidence supporting the hypothesis that output uncertainty raises inflation

an examination of aggregate price uncertainty in four countries and someimplications for real output this stu dy constructs measures of aggregate price uncertainty for four countries canada west germany great britain and the united states and examines the relationship across countries and through time between the inflation rate inflation variability and measures of price uncertainty the results suggest that the higher and more variable inflation of the 1970s increased uncertainty about the aggregate price level in canada great britain and the united states but not west ge rmany and there was a significant negative output effect of aggregate price uncertainty for canada and the united kingdom but not for the united states or west germany copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

inflation and inflation uncertainty in china abstractthe study examines the relationship between inflation and inflation uncertainty in china using generalized autoregressive conditional heteroscedasticity model particularly this link is investigated in china s urban and rural sectors motivated by the substantial urban rural divide the results provide strong statistical supportive evidence that higher inflation raises inflation uncertainty on the other hand evidence on the effect of inflation uncertainty on inflation is mixed depending on the sample periods and areas examined the understanding of inflation uncertainty nexus in china could provide implications to policymakers in the adoption of monetary policies

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

entrepreneurship social mobility and income redistribution in south india development economists have been preoccupied with the problem of increasing the size of the gnp pie to the relative neglect of its distribution despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth empirical data on the distribution of income business opportunity and economic power are in short supply many of the studies on entrepreneurship and economic development when they are not apologetics for ruthless capitalist exploitation as paul baran suggests extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage joseph schumpeter sees entrepreneurs irrespective of class origin as heroic figures with the dream and will to found a private kingdom to conquer adversity to achieve success for its own sake and to experience the joy of creation for gustav papanek 1967 the private entrepreneur who is frugal diligent far sighted remarkably able and willing to take political risks is in large part responsible for the success of pakistan in achieving rapid industrialization

a quantile framework for analysing the links between inflation uncertainty and inflation dynamics across countries in contrast to the conventional conditional mean approaches this study uses quantile regression techniques to present some new statistical evidence on the links between inflation uncertainty and the level of inflation with cross sectional data from 90 countries during the period 1961 to 2006 the results suggest that positive inflation shocks have stronger impact on inflation uncertainty which varies across the quantiles furthermore popular time series models are evaluated for their ability to reproduce measures of uncertainty and indicate similar results regarding the relationships between inflation and inflation uncertainty

uncertain effects of money and the link between the inflation rate and inflation uncertainty in the postwar period high rates of inflation are associated with high levels of inflation uncertainty in this paper i argue that the inflation rate and inflation uncertainty are linked by forecasters uncertainty about the impact of money growth on the price level and i present evidence indicating that this has been the case as long as the impact of money growth on the price level remains unpredictable then even predictable money growth will cause inflation uncertainty with its accompanying adverse effects on employment and output

macroeconomic uncertainty and performance in the european union abstract we use a very general bivariate garch m model and monthly data on eu countries covering the 1962 2003 period to test for the impact of real output growth and nominal inflation macroeconomic uncertainty on inflation and output growth our evidence supports a number of important conclusions first in the majority of countries uncertainty regarding the output growth rate is related to the average growth rate and the effect in several countries is negative second in half of the cases there is no significant relationship between inflation uncertainty and output growth performance third inflation and output uncertainty have a mixed effect on inflation nevertheless considerable evidence for the cukierman meltzer hypothesis is obtained our conclusions are based on adopting both a structural and a reduced form bivariate garch model finally we also find statistically significant evidence of regime switching for both inflation and output growth volatility throughout the sample

on inflation and inflation uncertainty in the g7 countries abstract the relationship between inflation and inflation uncertainty is investigated in the g7 countries from 1948 to 1993 garch models are used to generate a measure of inflation uncertainty and then granger methods are employed to test the causality between average inflation and inflation uncertainty in all g7 countries inflation significantly raises inflation uncertainty as predicted by friedman and ball weaker evidence is found that inflation uncertainty granger causes inflation in three countries us uk and germany increased inflation uncertainty lowers inflation while in two countries japan and france increased inflation uncertainty raises inflation

re examining inflation and inflation uncertainty in developed and emerging countries abstract this paper examines the relationship between inflation and inflation uncertainty for both developed and emerging countries we find new evidence that suggests positive inflationary shocks have stronger impacts on inflation uncertainty for mainly latin american countries

inflation output and uncertainty in the era of inflation targeting a multi economy view on causal linkages abstract this study provides cross country robust evidence on interdependencies among inflation output growth and respective uncertainties for the current era of low inflation policies we attribute the extant empirical disagreement on these relations to the fact that long sampling periods and single economies are typically considered for analysis in this study varx mgarch m models are estimated for 34 developed and emerging economies and the time period of 1990 2010 we study average granger causal effects by aggregating parameter estimates over economies the cross sectional variation of estimates serves as a means to assess the robustness of empirical findings over the entire cross section we find that both inflation and inflation uncertainty significantly reduce output growth economies with low inflation rates are particularly at risk to incur output losses from increasing inflation we also find spillover effects among uncertainty variables where the causal impact if present seems to point from the uncertainty in output to inflation uncertainty

the asymmetric effects of uncertainty on inflation and output growth we study the effects of growth volatility and inflation volatility on average rates of output growth and inflation for post war us data our results suggest that increased growth uncertainty is associated with significantly lower average growth while higher inflation uncertainty is significantly negatively correlated with lower output growth and lower average inflation both inflation and growth display evidence of significant asymmetric response to positive and negative shocks of equal magnitude copyright 2004 john wiley sons ltd

eoq and inflation uncertainty abstract inflation uncertainty is introduced into a basic eoq model and its potential to make mischief is explored among other things it is shown that even when the expected rate of inflation is less than the marginal cost of capital the appropriate discount rate to use in computing a discounted expected total inventory cost will not necessarily be negative therefore the classic eoq square root formula may drastically underestimate the optimal lot size the results may be generalized to the more complex inventory models

are empirical measures of macroeconomic uncertainty alike there is a plethora of time series measures of uncertainty for inflation and real output growth in empirical studies but little is known whether they are comparable to the uncertainty measure reported by individual forecasters in the survey of professional forecasters are these two measures of uncertainty inherently distinct this paper shows that compared with many uncertainty proxies produced by time series models the use of real time data with fixed sample recursive estimation of an asymmetric bivariate generalized autoregressive conditional heteroskedasticity model yields inflation uncertainty estimates which resemble the survey measure there is however overwhelming evidence that many of the time series measures of growth uncertainty exceed the level of uncertainty obtained from survey measure our results highlight the relative merits of using different methods in modelling macroeconomic uncertainty which are useful for empirical researchers

the relationship between inflation and inflation uncertainty in emerging market economies a standard generalized autoregressive conditional heteroskedastic q v model is employed to construct a measure of monthly inflation uncertainty in 12 emerging market economies and the relationship between inflation and inflation uncertainty is examined using granger causality tests the results suggest that higher inflation rates increased inflation uncertainty in all the economies providing strong support for the friedman hypothesis the evidence on the effect of inflation uncertainty on average monthly inflation is more mixed with increased inflation uncertainty leading to lower average inflation in colombia israel mexico and turkey consistent with the holland hypothesis but to higher average inflation in hungary indonesia and korea consistent with the hypothesis of cukierman and meltzer

interest rates inflation expectations and the inverted fisher hypothesis abstract the purpose of this paper is to reexamine for the u s the statistical validity of the inverted fisher hypothesis as proposed by carmichael and stebbing 1983 this is done using a new data set on expected inflation reported by lahiri et al 1988 and by estimating augmented versions of the hypothesis by incorporating the role of uncertainty about expected inflation as measured by its variance and higher order moments our results support the hypothesis for the entire sample period 1968 iv 1985 iv as well as for the two sub periods this result sharply differs from that of barth and bradley 1988 who reported that the hypothesis did not hold for the second sub period further unlike them we do not find any evidence of a structural break between the two periods

stochastic volatility in a macro finance model of the u s term structure of interest rates 1961 2004 this paper generalizes the standard homoscedastic macro finance model by allowing for stochastic volatility using the square root specification of the mainstream finance literature empirically this specification dominates the standard model because it is consistent with the square root volatility found in macroeconomic time series thus it establishes an important connection between the stochastic volatility of the mainstream finance model and macro economic volatility of the okun friedman type this research opens the way to a richer specification of both macro economic and term structure models incorporating the best features of both macro finance and mainstream finance models

critical realism and the austrian paradox austrian economics provokes mixed reactions among critical realists it preaches methodological individualism marginalism and rational choice while embracing emergence open processes and error the austrian school stands paradoxically with one foot each in the mainstream marginalist tradition and heterodox social theory i argue that this paradox can be disentangled by appeal to the fundamental distinction between the logic of choice and the logic of action i then extend the analysis of the logic of action to the critical realist account of the basic ontology of social structures arguing that successful retroduction of social structures depends on marginalist insights

estimates of the variance of u s inflation based upon the arch model it is generally agreed that the unpredictability of future inflation is a major component of the welfare loss associated with inflation perfectly predicted inflation might induce some costs through institutional rigidities governmental interference and transaction costs but in the long run these should be rather minimal as these institutions adopt various forms of indexing when inflation is unpredictable risk averse economic agents will incur a loss even if prices and quantities are perfectly flexible in all markets inflation is a measure of the relative price of goods today and goods tomorrow thus uncertainty in tomorrow s price impairs the efficiency of today s allocation decisions friedman in his nobel lecture 8 argues convincingly that higher variability of inflation would lead to decreased output ceteris paribus he then conjectures that higher rates of inflation are generally associated with higher variability of inflation and presumably greater uncertainty about future rates if this is true then higher rates of inflation would also be associated with low levels of output which implies a positively sloped phillips curve this paper uses a new statistical technique arch to estimate the conditional mean and variance of inflation from u s time series data the main finding is that the variance of inflation in the seventies was only slightly greater than in the sixties

the benefits of relationship lending in a cross country context a meta analysis relationship lending may create benefits for borrowers by reducing information asymmetries however empirical evidence is mixed we conduct a meta analysis to summarize and explain the heterogeneity in the results in the literature using hand collected information from 101 studies in the united states europe asia and latin america from 1970 to 2010 we find that strong relationships are generally beneficial for borrowers but lending outcomes differ across the relationships dimensions long lasting exclusive and synergy creating bank relationships are associated with higher credit volume and lower loan rates these benefits are more likely in the united states and in countries where bank competition is high they are not related to the importance of small and medium sized enterprises in an economy suggesting that prevalence of relationship lending does not necessarily come along with borrower benefits our inferences are robust when we control for observed systematic heterogeneity in the original

the link between macroeconomic performance and variability in the uk abstract this paper examines the link between inflation output growth and their respective variabilities we employ a bivariate garch model which incorporates mean and level effects to investigate in a unified empirical framework all the possible interactions between the four variables we show that not only does variability affect performance but the latter influences the former as well specifically inflation has a positive impact on both variabilities

nominal uncertainty and inflation the role of european union membership abstract we provide evidence that higher inflation uncertainty leads to higher inflation in the new european union eu member states and candidate countries only prior to eu accession during eu accession and entry inflation uncertainty has no effect on mean inflation

the stochastic volatility in mean model with time varying parameters an application to inflation modeling this article generalizes the popular stochastic volatility in mean model to allow for time varying parameters in the conditional mean the estimation of this extension is nontrival since the volatility appears in both the conditional mean and the conditional variance and its coefficient in the former is time varying we develop an efficient markov chain monte carlo algorithm based on band and sparse matrix algorithms instead of the kalman filter to estimate this more general variant the methodology is illustrated with an application that involves u s u k and germany inflation the estimation results show substantial time variation in the coefficient associated with the volatility highlighting the empirical relevance of the proposed extension moreover in a pseudo out of sample forecasting exercise the proposed variant also forecasts better than various standard benchmarks

inflation and uncertainty tests for temporal ordering for the postwar united states increases in the rate of inflation tend to precede increases in the level of inflation uncertainty the finding suggests that higher inflation uncertainty is part of the welfare cost of inflation possible explanations are 1 a high rate of inflation increases uncertainty about future monetary policy and 2 there is uncertainty about the persistence of inflation copyright 1995 by ohio state university press

the nature of heterodox economics heterodoxy serves as an umbrella term to cover the coming together of separate projects or traditions in answering the question what distinguishes heterodoxy from the orthodoxy the author argues that matters of ontology are central in answering the question how are the various traditions that make up the modern heterodoxy to be distinguished from each other the author defends criteria other than varying commitments to specific substantive theories policy measures or techniques or basic units of analysis

inflation and output growth uncertainty and their relationship with inflation and output growth abstract using a bivariate garch model of inflation and output growth we find evidence that higher inflation and more inflation uncertainty lead to lower output growth in the japanese economy these results support the argument of a price stability objective for the monetary authority