The Relationship between Inflation and Inflation Uncertainty: Evidence from the Turkish Economy

Karahan, Özcan

doi:10.1016/s2212-5671(12)00026-3

Cited by 18 publications

(25 citation statements)

References 27 publications

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“…The Friedman-Ball hypothesis is supported, for example, by: Grier and Perry (1998) [13], Daal et al (2005) [14], Thornton (2008) [15], Keskek and Orhan (2010) [16], and Karahan (2012) [17]. On the other hand, the Cukierman and Meltzer hypothesis is supported by the findings of Conrad and Karanasos (2005) [18], Wilson (2006) [19], and Fountas (2010) [20].…”

Section: Literature Reviewmentioning

confidence: 95%

“…Kontonikas (2004) [24] also found that the adoption of inflation target in UK since 1992 has helped eliminate inflation persistence and reduced long-run uncertainty. Using a two-step procedure, Karahan (2012) [17] examined the relationship between inflation and inflation uncertainty in Turkey from 2002 to 2011 and found evidence in favor of the Friedman-Ball hypothesis that inflationary periods result in high inflation uncertainty in the Turkish case. In another study, Heidari and Bashiri (2010) [25] used the Full Information Maximum Likelihood method to examine the inflation-inflation uncertainty relationship in Iran and found support for the Friedman-Ball hypothesis.…”

Section: Literature Reviewmentioning

confidence: 99%

“…In the second step, a Granger causality test is performed to determine the direction of causality between the level of inflation and the generated inflation uncertainty measure from the first step. Among the studies that used this approach include Grier and Perry (1998) [13], Nas and Perry (2000) [31], Daal et al (2005) [14], Payne (2008) [32], and Karahan (2012) [17]. For example, Nas and Perry (2000) [31] examined the relation between inflation and inflation uncertainty in Turkey from 1960 to 1998 using the two-step procedure.…”

Section: Modeling Inflation and Inflation Uncertainty Relationship: Tmentioning

confidence: 99%

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Inflation and Inflation Uncertainty Revisited: Evidence from Egypt

Sharaf

2015

Economies

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Abstract:The welfare costs of inflation and inflation uncertainty are well documented in the literature and empirical evidence on the link between the two is sparse in the case of Egypt. This paper investigates the causal relationship between inflation and inflation uncertainty in Egypt using monthly time series data during the period January 1974-April 2015. To endogenously control for any potential structural breaks in the inflation time series, Zivot and Andrews (2002) and Clemente-Montanes-Reyes (1998) unit root tests are used. The inflation-inflation uncertainty relation is modeled by the standard two-step approach as well as simultaneously using various versions of the GARCH-M model to control for any potential feedback effects. The analyses explicitly control for the effect of the Economic Reform and Structural Adjustment Program (ERSAP) undertaken by the Egyptian government in the early 1990s, which affected inflation rate and its associated volatility. Results show a high degree of inflation-volatility persistence in the response to inflationary shocks. Granger-causality test along with symmetric and asymmetric GARCH-M models indicate a statistically significant bi-directional positive relationship between inflation and inflation uncertainty, supporting both the Friedman-Ball and the Cukierman-Meltzer hypotheses. The findings are robust to the various estimation methods and model specifications. The findings of this paper support the view of adopting inflation-targeting policy in Egypt, after fulfilling its preconditions, to reduce the welfare cost of inflation and its related uncertainties. Monetary authorities in Egypt should enhance the credibility of monetary policy and attempt to reduce inflation uncertainty, which will help lower inflation rates.

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Section: Literature Reviewmentioning

confidence: 95%

Section: Literature Reviewmentioning

confidence: 99%

Section: Modeling Inflation and Inflation Uncertainty Relationship: Tmentioning

confidence: 99%

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Inflation and Inflation Uncertainty Revisited: Evidence from Egypt

Sharaf

2015

Economies

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“…Table 1 reports the empirical literature on the relationship between inflation and inflation uncertainty for the Turkish economy. Accordingly, a larger part of the studies found evidence in favour of the Friedman-Ball hypothesis (see e.g., Karahan, 2012;Keskek & Orhan, 2008;Nas & Perry, 2000;Neyapti & Kaya, 2001;Ozdemir & Fisunoglu, 2008;Telatar & Telatar, 2003) while the findings of some studies supported the Cukierman-Meltzer hypothesis (see e.g., Berument et al, et al, 2017). Besides, one study explored both hypotheses prevailed about the inflation-inflation uncertainty nexus in Turkey (see e.g., Turkyilmaz & Ozer, 2010).…”

Section: Literature Reviewmentioning

confidence: 96%

The causal linkage between inflation and inflation uncertainty under structural breaks: Evidence from Turkey

Apergis

Bulut

Üçler

et al. 2021

The Manchester School

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“… There is also a growing literature that studies the relationship between inflation and inflation uncertainty using data from emerging market economies, see for example, Thorton (), Özdemir and Fisunoğlu () and Karahan () among others. In these studies, empirical evidence generally supports causality from inflation to inflation uncertainty, validating the theories put forward in Friedman () and Ball (). …”

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confidence: 99%

Has the 2008 financial crisis and its aftermath changed the impact of inflation on inflation uncertainty in member states of the european monetary union?

Nonejad

2018

Scottish J Political Eco

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We study to what extent the financial crisis of 2008 and its aftermath have changed the impact of inflation on inflation uncertainty in the 12 original member states of the European Monetary Union (EMU). We adopt a time-varying coefficient regression model with stochastic volatility effects, and extract two measures of inflation uncertainty from our data, namely, (1) The conditional volatility of inflation, (2) The conditional volatility of steady-state inflation.(1)-(2) represent short-run and steady-state inflation uncertainty, respectively. The time-varying impact of inflation on inflation uncertainty is analyzed using Markov-switching regressions, where switching between the low and high inflation uncertainty regime is determined via an unobserved Markov process. Results suggest that the 2008 financial crisis and its aftermath have changed the impact of inflation on (1) and (2) across the selected EMU member states. However, a uniform pattern cannot be detected. For some member states, we document a strong link, whereas for others, the impact of inflation on inflation uncertainty is relatively weaker. 246fiscal authorities. In such instances, large budget deficits in individual member states can put pressure on the central bank in charge of monetary policy for the entire monetary union to inflate. As argued in Davig et al. (2011), this can ultimately increase inflation and inflation uncertainty as it becomes unclear to what degree the central bank can resist pressures to inflate, or reverse already implemented inflationary policy. The latter event represents a major economic shock that evidently creates uncertainty regarding future inflation rates. It also creates additional uncertainty (within the monetary union) with regard to responses and implications of policies conducted by the central bank currently in charge of monetary policy for the entire union in times of economic turmoil.Accordingly, understanding the impact of inflation on inflation uncertainty, and its implications on economic activity is of great interest to European policy makers for a number of reasons: First, any evidence that inflation causes inflation uncertainty with possible adverse output effect undoubtedly strengthens the price stability objective of the European Central Bank (ECB). 1 Second, according to Fountas et al. (2004), under (1) A common monetary policy, where the aim is to achieve a uniform inflation rate across the member states, and (2) The assumption that the interaction between inflation and output takes place through the inflation uncertainty channel, any heterogeneity (in the sense that the impact of inflation on inflation uncertainty, and the effect of inflation uncertainty on growth differs across individual member states) can result in asymmetric real effects (given the single nominal interest rate). In other words, inflationreduction (e.g., due to contractionary monetary policy) can increase aggregate output in some member states, but reduce output in others. As argued in Fountas et al. (2004), policy makers are...

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The Relationship between Inflation and Inflation Uncertainty: Evidence from the Turkish Economy

Cited by 18 publications

References 27 publications

Inflation and Inflation Uncertainty Revisited: Evidence from Egypt

Inflation and Inflation Uncertainty Revisited: Evidence from Egypt

The causal linkage between inflation and inflation uncertainty under structural breaks: Evidence from Turkey

Has the 2008 financial crisis and its aftermath changed the impact of inflation on inflation uncertainty in member states of the european monetary union?

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