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:: Volume 10, Issue 2 (Spring 2015) ::
J. Mon. Ec. 2015, 10(2): 69-91 Back to browse issues page
Relationship between Inflation and Inflation Uncertainty in Iran: An Application of SETAR-GARCH Model
Mohammad Ali Falahi 1, Mehdi Hajamini2
1- Ferdowsi University of Mashhad
2- Ferdowsi University of Masshad
Abstract:   (1185 Views)

The purpose of this paper is to investigate the relationship between the inflation and inflation uncertainty in Iran. Using mixed models of self-exciting threshold autoregressive (SETAR) and generalized autoregressive conditional heteroskedasticity (GARCH), the inflation behaviors are examined for the period 1990M05-2013M10. This approach allows testing the hypotheses of Friedman-Ball, Pourgerami-Maskus, Cukierman-Meltzer, and Holland during different inflationary regimes. The results indicate that an increase in Iran’s inflation leads to higher inflation uncertainty, as predicted by Friedman-Ball Hypothesis, while the other three hypotheses are not confirmed. Positive unidirectional causality from inflation to uncertainty seems to be significant only in periods of relatively higher inflation, but not in periods of low inflation. The finding is important because it confirms the existence of regime-dependent effect of inflation on public’s expectations about future inflation; that, in trend, it reduces economic activity and misallocates resources. This is a new insight about asymmetric behaviour of inflation in Iran that has noteworthy implications for policy-makers, especially for price stabilizing and inflation targeting.

JEL Classifications: C22, E31.

Keywords: Inflation uncertainty, Nonlinearity, Self-exciting threshold autoregressive, Iran
Full-Text [PDF 1002 kb]   (1033 Downloads)    
Type of Study: Research | Subject: Macroeconomics
Received: 2015/07/1 | Accepted: 2016/10/22 | Published: 2016/10/22
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Falahi M A, Hajamini M. Relationship between Inflation and Inflation Uncertainty in Iran: An Application of SETAR-GARCH Model. J. Mon. Ec.. 2015; 10 (2) :69-91
URL: http://jme.mbri.ac.ir/article-1-140-en.html

Volume 10, Issue 2 (Spring 2015) Back to browse issues page
Journal of Money and Economy Journal of Money And Economy
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