The links between inflation, inflation uncertainty and output growth: New time series evidence from Japan

Abstract

Employing a bivariate EGARCH-M model, we investigate the links between inflation, inflation uncertainty and output growth for post-war Japanese data. Our results indicate that increased inflation uncertainty is associated with higher average inflation and lower average growth in Japan. Further, we find that increased growth uncertainty is associated with higher average inflation, but unrelated to average growth. Lastly, both inflation and growth display significant asymmetry in their respective conditional variances. Specifically, negative surprises raise both inflation uncertainty and growth uncertainty more than positive surprises. © 2006 Elsevier Inc. All rights reserved.