Inflation and Inflation Volatility Revisited
- Authors
- Kim, Dong-Hyeon; Lin, Shu-Chin
- Issue Date
- 2012
- Publisher
- WILEY
- Keywords
- Inflation; Inflation volatility; Simultaneous equations; Identification through heteroskedasticity
- Citation
- INTERNATIONAL FINANCE, v.15, no.3, pp.327 - 345
- Indexed
- SSCI
SCOPUS
- Journal Title
- INTERNATIONAL FINANCE
- Volume
- 15
- Number
- 3
- Start Page
- 327
- End Page
- 345
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/110882
- DOI
- 10.1111/j.1468-2362.2013.12001.x
- ISSN
- 1367-0271
- Abstract
- The link between inflation and its variability has been a topic of considerable interest and dispute, with theoretical disagreements and inconclusive empirical results. Empirical problems often arise from endogeneity and reverse causality. This paper reassesses the link through a system of simultaneous equations that addresses the reverse causality issue. Employing the identification through heteroskedasticity approach as an identification strategy and using a panel of 105 countries over the period 19602007, we find a two-way interaction between inflation and its variability. In particular, higher inflation increases inflation volatility, which is in line with the Friedman-Ball Hypothesis. Consistent with the Cukierman-Meltzer arguments, moreover, greater inflation volatility fuels inflation. The evidence is robust to alternative model specifications, time periods, and country characteristics.
- Files in This Item
- There are no files associated with this item.
- Appears in
Collections - College of Life Sciences and Biotechnology > Department of Food and Resource Economics > 1. Journal Articles
Items in ScholarWorks are protected by copyright, with all rights reserved, unless otherwise indicated.