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. Th...

Full description

Bibliographic Details

Main Authors:	Caporale, Guglielmo Maria (Author), Onorante, Luca (Author), Paesani, Paolo (Author)
Format:	Book
Language:	English
Published:	München CESifo 2009
Series:	CESifo working paper 2720 : Category 7, Monetary policy and international finance
Subjects:	Europäische Zentralbank Inflationsrate Inflation Euro > Währung Inflationspolitik GARCH-Prozess
Summary:	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. -- inflation ; inflation uncertainty ; time-varying parameters ; GARCH models ; ECB, EMU
Physical Description:	20 S. graph. Darst.