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Cross-sectional evidence on the relation between monetary policy, macroeconomic conditions and low-frequency inflation uncertainty

Conrad, Christian ; Hartmann, Matthias

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Abstract

We examine how the interaction between monetary policy and macroeconomic conditions affects inflation uncertainty in the long-term. The unobservable inflation uncertainty is quantified by means of the slowly evolving long-term variance component of inflation in the framework of the Spline-GARCH model (Engle and Rangel, 2008). For a cross-section of 13 developed economies, we find that long-term inflation uncertainty is high if central bank governors are perceived as less inflation-averse and if the conduct of monetary policy is ad-hoc rather than rule-based.

Item Type: Working paper
Series Name: Discussion Paper Series, University of Heidelberg, Department of Economics
Volume: 0574
Place of Publication: Heidelberg
Date Deposited: 21 Oct 2014 09:56
Date: October 2014
Number of Pages: 43
Faculties / Institutes: The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 330 Economics
Uncontrolled Keywords: Inflation uncertainty, Central banking, Spline-GARCH.
Schriftenreihe ID: Discussion Paper Series / University of Heidelberg, Department of Economics
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