Inflation And Inflation Uncertainty: Evidence From Two Transition Economies
This paper examines the causal link between inflation and inflation uncertainty for the transition economies of Russia and Ukraine. The Iterated Cumulative Sums of Squares Exponential Generalized Autoregressive Conditional Heteroskedasticity (ICSS-EGARCH- M-t) models that allow for asymmetry and regime shifts in the variance of inflation are employed to establish the inflation-inflation uncertainty causal relationship. The authors find three breaks in the inflation volatility series that coincide with the major historical events in these two countries. The empirical results reveal strong support of the Friedman-Ball hypothesis in both countries.