The effect of inflation uncertainty on inflation: Stochastic volatility in mean model within a dynamic framework

Abstract

a b s t r a c t a r t i c l e i n f oThis paper investigates the effect of inflation uncertainty innovations on inflation over time by considering the monthly United States data for the time period 1976-2006. In order to investigate the effect of inflation uncertainty innovation on inflation, a Stochastic Volatility in Mean model (SVM) has been employed. SVM models are generally used to capture the innovation to inflation uncertainty, which cannot be achieved in the framework of popular deterministic ARCH type of models. Empirical evidence provided here suggests that innovations in inflation volatility increases inflation persistently. This evidence is robust across various definitions of inflation and different sub-periods.

The semiparametric asymmetric stochastic volatility model with time-varying parameters: The case of US inflation

“…In Table 1 inflation uncertainty has also been supported by previous studies; see for example (Cukierman and Meltzer, 1986) and (Berument et al, 2009). …”

Policy uncertainty and aggregate fluctuations

“…The framework proposed in this paper can be thought of as a multivariate extension of the stochastic volatility in mean specification put forward by Koopman and Uspensky () and applied by Berument, Yalcin, and Yildirim () and Lemoine and Mougin (). Furthermore, our model shares similarities with the stochastic volatility specifications with leverage studied by Asai and McAleer ().…”

Sources of volatility persistence: A case study of the U.K. pound/U.S. dollar exchange rate returns

“…2 Studies that consider other aspects of volatility include Chen (2007), Suardi (2008), Berument, Yalcin, and Yildirim (2009), Pesaran and Pesaran (2010), Sabiruzzaman, Monimul Huq, Beg, and Anwar (2010 and Naifar (2012).…”