Inflation and Inflation Uncertainty in Iran: A New Approach to the Study of Interactive Communication

Subject Areas : Futurology

K. Emami ¹ , A. Salmanpoor ²

1 - ندارد
2 - ندارد

Received: 2015-01-13 Accepted : 2015-01-13 Published : 2006-06-22

Keywords: Inflation, Inflation Uncertainty, Friedman-Ball Hypothesis, Cukierman-Meltzer Hypothesis, Autoregressive Conditional Het,

Abstract :

consequences have the major importance but the study of the relationship between inflation and inflationuncertainty is important as well since one of the major consequences of inflation may be the uncertaintyabout the future inflation. In fact, inflation uncertainty is a part of unpredictable future inflation rate that canadd the consequences of the negative effects of inflation on economic variables because, by their decisionsand actions, the economic agents may reduce or destroy the costs of the predicted part of the inflation. Butthe inflation uncertainty is the unpredictable part of the inflation. Inflation uncertainty has had great effectson labor supply, savings, investment, economic growth and etc. and following these, other economicvariables are influenced as well. There are two major views on the relationship between inflation andinflation uncertainty: the first one being Friedman-Ball hypothesis, and the second Cukierman-Meltzerhypothesis. In this article, two different theoretical view points are studied and finally by the help ofautoregressive conditional heteroskedasticity (ARCH) model and its generalized form, i.e., (GARCH), aunidirectional relationship from inflation to inflation uncertainty or vise versa and the probability of abilateral relationship between these two variables in economics of Iran and during the years between 1315-1382 have been analyzed. The relationship between these two variables have been studied in the short-,middle-, and long-run and the results obtained support the existence of a unidirectional relationship frominflation to inflation uncertainty. For the short-run, this relationship is more intensive than long-run. In thestudy of the effects of inflation shocks on inflation uncertainty, it can be said that inflation shocks had had asymmetric effect on inflation uncertainty in the short-run but asymmetric one in the long-run and then thepositive shocks will have greater effect on the inflation uncertainty than the negative shocks in the long-run.