The Linkages between Inflation and Inflation Uncertainty in Selected Asian Economies: Evidence from Quantile Regression

  • Komain JIRANYAKUL School of Development Economics National Institute Administration, Bangkok, Thailand

Abstract

This paper examines inflation-inflation uncertainty nexus in both inflation targeting and non-inflation targeting economies in Asia. Using monthly data from 1979M1 to 2019M12, the AR(p)-EGARCH model is used to generate inflation uncertainty series. In addition, quantile regression is employed to examine the linkages between inflation and inflation uncertainty in nine Asian countries. The results show that inflation positively causes inflation uncertainty in all economies regardless of whether economies have implemented inflation targeting or not. The Friedman-Ball hypothesis is thus supported. In addition, inflation uncertainty positively causes inflation in most economies. Therefore, the Cukierman-Meltzer hypothesis is likely to be supported. The findings signal the possibility of the real cost of inflation for these economies.

References

[1] Albulescu, C., Tiwari, A., Miller, S., Gupta, R. 2016. Time-frequency relationship between inflation and inflation uncertainty for the US: Evidence from historical data. Working Paper No. 2016-12, University of Connecticut, Department of Economics.
[2] Ball, L. 1992. Why does high inflation raise inflation uncertainty? Journal of Monetary Economics, 29(3): 371-388. DOI: https://doi.org/10.1016/0304-3932(92)90032-W
[3] Caporale, G.M., and Kontonikas, A. 2009. The Euro and inflation uncertainty in the European Monetary Union. Journal of International Money and Finance 28(6): 954-971. DOI: https://doi.org/10.1016/j.jimonfin.2008.09.004
[4] Chen, S-W., Shen, C-H., and Xie, Z. 2008. Evidence of a nonlinear relationship between inflation and inflation uncertainty: the case of the four little dragons. Journal of Policy Modeling 30(2): 363-376. DOI: https://doi.org/10.1016/j.jpolmod.2007.01.007
[5] Chowdhury, A. 2014. Inflation and inflation uncertainty in India: the policy implications of the relationship. Journal of Economic Studies, 41(1): 71-86. DOI: https://doi.org/10.1108/JES-04-2012-0046
[6] Chowdhury, K.B., Sarkar, N. 2015. The effect of inflation on inflation uncertainty in the G7 countries: a double threshold GARCH model. International Econometric Review, 7(1): 34-50. DOI: 10. 33818/ier.278039
[7] Cukierman, A., Meltzer, A. 1986. A theory of ambiquity, credibility, and inflation under discretion and asymmetric information. Econometrica, 54(5): 1099-1128. DOI: 10.2307/1912324
[8] Daal, E., Naka, A., Sanchez, B. 2005. Re-examining inflation and inflation uncertainty in developed and developing countries. Economics Letters, 89(2): 180-186. DOI: https://doi.org/10.1016/j.econlet.2005.05.024
[9] Fountas, S., and Karanasos, M. 2007. Inflation, output growth, and nominal and real uncertainty: empirical evidence for the G7. Journal of international Money and Finance, 26(2): 229-250.
[10] Friedman, M. 1977. Nobel lecture: inflation and unemployment. Journal of Political Economy, 85(3): 451-472. DOI: https://www.journals.uchicago.edu/doi/10.1086/260579
[11] Gerlach, S., Tillman, P. 2012. Inflation targeting and inflation persistence in Asia-Pacific. Journal of Asian Economics, 23(4): 360-373. DOI: https://doi.org/10.1016/j.asieco.2012.03.002
[12] Grier, K., Perry, M.J. 1998. On inflation and inflation uncertainty in the G7 countries. Journal of International Money and Finance, 17(4): 671-689. DOI: https://doi.org/10.1016/S0261-5606(98)00023-0
[13] Holland, A.S. 1995. Inflation and uncertainty: tests for temporal ordering. Journal of Money, Credit and Banking, 27(3): 827-837. DOI: 10.2307/2077753
[14] Jiranyakul, K., Opiela, T.P. 2010. Inflation and inflation uncertainty in the ASEAN-5 economies. Journal of Asian Economics, 21(2): 105-112. DOI: https://doi.org/10.1016/j.asieco.2009.09.007
[15] Koenker, R., and Hallock, K. 2001. Quantile Regression. Journal of Economic Perspectives: 15(4): 143-156. DOI: 10.1257/jep.15.4.143
[16] Kontonikas, A. 2004. Inflation and inflation uncertainty in the United Kingdom, evidence from GARCH modeling. Economic Modelling, 21(3): 525-543. DOI: https://doi.org/10.1016/j.econmod.2003.08.001
[17] Mohd, S.H., Baharumshah, A.Z., Fountas, S. 2013. Inflation, inflation uncertainty and output growth: Recent evidence from ASEAN-5 countries. Singapore Economic Review, 58(4): 1-17.
[18] Nasr, A.B., et al. 2015. Causality between inflation and inflation uncertainty in South Africa: evidence from a Markov-switching vector autoregressive model. Emerging Markets Review, 24(C): 46-68. DOI: https://doi.org/10.1016/j.ememar.2015.05.003
[19] Nelson, D.B. 1991. Conditional heteroskedasticity in asset returns: a new approach. Econometrica, 59(2): 347-370. DOI: https://doi.org/0012-9682(199103)59:2<347:CHIARA>2.0.CO;2-V
[20] Su, C-W., Yu, H., Chang, H-L., Li, X-L. 2017. How does inflation determine inflation uncertainty? A Chinese perspective. Quality and Quantity: International Journal of Methodology, 51(3): 1417-1434. DOI: https://doi.org/10.1007/s11135-016-0341-2
[21] Zivkov, D., Njegic, J., Pecanac, M. 2014. Bidirectional linkage between Inflation and inflation uncertainty – the case of Eastern European countries. Baltic Journal of Economics, 14 (1-2): 124-139.
Published
2020-12-22
How to Cite
JIRANYAKUL, Komain. The Linkages between Inflation and Inflation Uncertainty in Selected Asian Economies: Evidence from Quantile Regression. Journal of Advanced Studies in Finance, [S.l.], v. 11, n. 2, p. 74-80, dec. 2020. ISSN 2068-8393. Available at: <https://journals.aserspublishing.eu/jasf/article/view/5759>. Date accessed: 11 may 2021. doi: https://doi.org/10.14505//jasf.v11.2(22).02.
Section
Journal of Advanced Studies in Finance