Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/29787
Authors: 
Caporale, Guglielmo Maria
Onorante, Luca
Paesani, Paolo
Year of Publication: 
2009
Series/Report no.: 
DIW Discussion Papers 909
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.
Subjects: 
Inflation
inflation uncertainty
time-varying parameters
GARCH models
ECB
EMU
JEL: 
E31
E52
C22
Document Type: 
Working Paper

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