Inflation, Inflation Uncertainty And Growth: Are They Related?

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Executive Summary

The authors examine the relationship between inflation uncertainty, inflation and growth using annual historical data on industrial countries covering in many cases more than one century. Proxying inflation uncertainty by the conditional variance of inflation shocks, they obtain the following results. There is significant evidence for the positive effect of inflation uncertainty on inflation supporting the Cukierman-Meltzer hypothesis. There is mixed evidence on the causal effect of inflation on inflation uncertainty. There is strong evidence that inflation uncertainty is not detrimental to output growth.

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