On the determinants of long-run inflation uncertainty: Evidence from a panel of 17 developed economies

European Journal of Political Economy, Forthcoming. A preliminary version of this paper circulated under the title "Cross-Sectional Evidence on the Relation between Macroeconomic Conditions, Stock Market Volatility, Monetary Policy, and Low-Frequency Inflation Uncertainty".

48 Pages Posted: 18 Oct 2014 Last revised: 24 Sep 2018

See all articles by Christian Conrad

Christian Conrad

Heidelberg University - Alfred Weber Institute for Economics; ETH Zürich - KOF Swiss Economic Institute

Matthias Hartmann

Alfred-Weber-Institut

Date Written: August 31, 2018

Abstract

Based on a cross section of 17 advanced economies and data for the period 1975 to 2015, we examine how the interaction between monetary policy and macroeconomic conditions affects inflation uncertainty in the long-term. We construct a proxy for the unobservable inflation uncertainty based on the slowly evolving long-term variance component of inflation from a Spline-GARCH model (Engle and Rangel, 2008). We show that long-run inflation uncertainty is high if an inflation-tolerant central bank governor is in power during a period of high inflation, if the policy rate is below the one that is prescribed by the Taylor rule and during times of heightened stock and exchange rate volatility.

Keywords: Inflation uncertainty, Central banking, Spline-GARCH

JEL Classification: E58, E65, E31

Suggested Citation

Conrad, Christian and Hartmann, Matthias, On the determinants of long-run inflation uncertainty: Evidence from a panel of 17 developed economies (August 31, 2018). European Journal of Political Economy, Forthcoming. A preliminary version of this paper circulated under the title "Cross-Sectional Evidence on the Relation between Macroeconomic Conditions, Stock Market Volatility, Monetary Policy, and Low-Frequency Inflation Uncertainty". , Available at SSRN: https://ssrn.com/abstract=2511171 or http://dx.doi.org/10.2139/ssrn.2511171

Christian Conrad

Heidelberg University - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany
+49 (06)221 543173 (Phone)

HOME PAGE: http://www.uni-heidelberg.de/conrad

ETH Zürich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

Matthias Hartmann (Contact Author)

Alfred-Weber-Institut ( email )

Bergheimer Straße 58
Heidelberg, 69117
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
80
Abstract Views
767
Rank
551,501
PlumX Metrics