Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/153663 
Year of Publication: 
2010
Series/Report no.: 
ECB Working Paper No. 1229
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper estimates a time-varying AR-GARCH model of inflation producing measures of inflation uncertainty for the euro area, and investigates their linkages 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. Steadystate 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, consistently with the idea that the ECB can achieve lower inflation uncertainty by lowering the inflation rate.
Subjects: 
ECB
EMU
GARCH Models
inflation
Inflation Uncertainty
time-varying parameters
JEL: 
E31
E52
C22
Document Type: 
Working Paper

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