Inflation, Inflation Uncertainty
and Growth: Are they Related?
Yellen remained bullish in remarks after the close, though she was very explicit about inflation uncertainty
, which remains a conundrum for her and her colleagues.
This hypothesis has been strongly supported by the previous studies while inquiring partial relationship of inflation and inflation uncertainty
(Fountas, 2001; Berument and Dincer 2005; Daal, Naka and Sanchez 2005; Jiranyakul and Opiela 2010; Javed et al.
Median inflation uncertainty
(that is, the uncertainty expressed by respondents regarding future inflation outcomes) declined slightly at the one-year horizon, and remained flat at the three-year horizon.
But we find that explanation incomplete at best and consider whether a decline in inflation uncertainty
is also playing a role.
They find that investment responds less to sales growth for those firms that face higher inflation uncertainty
Grier and Perry (1996) on the other hand show that only ex ante inflation uncertainty
increases relative price variability.
2006: Inflation uncertainty
, output growth uncertainty and macroeconomic performance.
Results of Heidari and Yengjeh (2010) suggest no significant relationship between inflation uncertainty
and real growth.
Similarly, inflation uncertainty
appears to affect variables such as output, employment and interest rates.
Incorporate past deviations in choosing future inflation targets: The most important payoff to announcing that future inflation targets will reflect past deviations from target is that it could lead to a reduction in medium- and long-horizon inflation uncertainty
Stilianos Fountas (2010), "Inflation, inflation uncertainty
and growth: Are they related?