Inflation uncertainty

Inflation uncertainty

The fact that future inflation rates are not known. It is a possible contributing factor to the makeup of the term structure of interest rates.

Inflation Uncertainty

The concept that the future inflation rate is unknowable. Inflation uncertainty is the reason that the yield curve on a bond (usually) trends upward. That is, investors expect extra compensation for accepting the possibility that inflation may outpace the yield on the bond.
References in periodicals archive ?
Inflation and inflation uncertainty in Iran: an application of GARCH-in-Mean model with FIML method of estimation, International Journal of Business and Development Studies 2(1): 131-146.
Similarly, inflation uncertainty appears to affect variables such as output, employment and interest rates.
Stilianos Fountas (2010), "Inflation, inflation uncertainty and growth: Are they related?", Journal of Economic Modeling, 27 (2010) 896-899.
The reasoning behind this argument lies in the fact that unanchored inflationary expectations can lead to a rise in both actual inflation and inflation uncertainty which may, in turn, prove costly for the economy by distorting the efficient allocation of resources.
Section 4 uses endogenous breakpoint tests to assess the timing and significance of the structural break in the relationship between expected inflation and RPV, where we controlled for possible changes in the effects of unexpected inflation and inflation uncertainty on RPV.
The adjustment assumes the inflation risk premium is constant over time, when it seems plausible that inflation uncertainty (and hence the inflation premium) has recently increased.
Second, there are prominent positive outliers for GDP growth, three of the first four of which occur in the first quarter of the year, likewise the positive inflation uncertainty revisions in 1997Q1 and 2000Q1.
This article develops an empirical test of the first hypothesis, using a reduced-form interest rate equation that links the long bond rate directly to macroeconomic variables, including an empirical proxy for inflation uncertainty. I focus on the first hypothesis for two reasons.
"Bank chief economist Charles Bean has since suggested that this removes some of the inflation uncertainty, which indicates that if the meeting had taken place today, the vote would have been closer."
Note that, if Federal Reserve communication and surprises in monetary policy actions bear on inflation uncertainty, then the error term of the regression equation (3) is heteroskedastic.
In such a world with no inflation (and no accompanying inflation uncertainty), the option-adjusted NPV rule--inequality (2)--provides an unambiguous link between business fixed investment and the ratio of a long-term callable default-free rate to a duration-matched non-callable default-free rate.
- Indicator of inflation uncertainty (sd[[pi].sub.-1]).