Inflation Uncertainty, Output Growth Uncertainty and Macroeconomic Performance: Comparing Alternative Exchange Rate Regimes in Eastern Europe

Khan, Muhammad and Kebewar, mazen and Nenovsky, Nikolay (2013): Inflation Uncertainty, Output Growth Uncertainty and Macroeconomic Performance: Comparing Alternative Exchange Rate Regimes in Eastern Europe.

Abstract

In the late 90's, after severe financial and economic crisis, accompanied by inflation and exchange rate instability, Eastern Europe emerged into two groups of countries with radically contrasting monetary regimes (Currency Boards and Inflation targeting). The task of our study is to compare econometrically the performance of these two regimes in terms of the relationship between inflation, output growth, nominal and real uncertainties from 2000 till now. In other words, we test the hypothesis of non-neutrality of monetary and exchange rate regimes with respect to these connections. In a whole, the empirical results do not allow us to judge which monetary regime is more appropriate and reasonable to assume. EU enlargement is one of the possible explanations for the numbing of the differences and the lack of coherence between the two regimes in terms of inflation, growth and their uncertainties

• Item Type: MPRA Paper
• Language: English
• Keywords: Inflation, inflation uncertainty, real uncertainty, monetary regimes, Eastern Europe
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; E - Macroeconomics and Monetary Economics > E0 - General

References

Black, F. (1987) “Business Cycles and Equilibrium” Basil Blackwell, New York.

Brunner, A.D. and G. Hess (1993) “Are higher levels of inflation less predictable? A state dependent conditional heteroskedasticity approach” Journal of Business and Economic Statistics 11(2), 187-197.

Caprole, G.M. and A. Kontonikas (2009) “The Euro and inflation uncertainty in the European Monetary Union” Journal of International Money and finance 28, 954-971.

Cecchetti, S. and S. Krause (2001) “Financial Structure, Macroeconomic Stability and Monetary Policy” NBER working paper number 8354.

Cukierman, A. and A. Meltzer (1986) “A theory of ambiguity, credibility, and inflation under discretion and asymmetric information” Econometrica 54, 1099-1128.

Devereux, M. (1989) “A positive theory of inflation and inflation variance” Economic Inquiry 27, 105-116.

Fountas, S. and M. Karanasos (2007) “Inflation, output growth, and nominal and real uncertainty: Empirical evidence for the G7”. Journal of International Money and finance 26, 229-250.

Fountas, S. Ioannidis, A. and M. Karanasos (2004) “Inflation, inflation uncertainty, and a common European monetary policy” The Manchester School 72(2), 221-242.

Friedman, M. (1977) “Nobel Lecture, Inflation and Unemployment” Journal of Political Economy 85, 451-72.

Frohman, A. Leroy L.O. and D. Thomas (1981) “Uncertainty Costs of High Inflation” Voice of the Federal Reserve Bank of Dallas. July, 1-9.

Golob, J. (1994) “Does Inflation Uncertainty Increases with Inflation” Federal Reserve Bank of Kansas City. Third Quarter, 28-38.

Grier, K. and M. Perry (2000) “The effects of real and nominal uncertainty on inflation and output growth: some GARCH-M evidence” Journal of Applied Econometrics 15, 45-58.

Grier, K. and M. Perry (1998) “On inflation and inflation uncertainty in the G-7 countries” Journal of International Money and Finance 17, 671-689.

Grier, K. Henry, Ó. Olekalns, N. and K. Shields (2004) “The asymmetric effects of uncertainty on inflation and output growth” Journal of Applied Econometrics 19(5), 551-565.

Holland, S. (1995) “Inflation and uncertainty: tests for temporal ordering” Journal of Money, Credit, and Banking 27(3), 827-837.

Lucas, R. (1973) “Some international evidence on output inflation trade-offs” American Economic Review 63, 326-334.

Maurer, B. (2006) “The Anthropology of Money” The Annual Review of Anthropology 35, 15-36.

Pindyck, R. (1991) “Irreversibility, uncertainty, and investment” Journal of Economic Literature 29(3), 1110-1148.

Taylor, John B, (1979) “Staggered Wage Setting in a Macro Model” American Economic Review 69(2), 108-113.