Inflation and its variability: an alternative specification

In a recent paper, Chowdhury (1991) reconsiders the empirical relationship between inflation rates and inflation variability. Using data for 66 countries over the sample period, 1955-1985, Chowdhury finds there exists a positive relationship between the rate of inflation and its variability. However...

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Bibliographic Details
Published in:Applied economics 1993-01, Vol.25 (1), p.43-46
Main Author: Emery, Kenneth M.
Format: Article
Language:English
Subjects:
Correlation analysis
Economic models
Inflation
Inflation rates
Variances
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Summary:In a recent paper, Chowdhury (1991) reconsiders the empirical relationship between inflation rates and inflation variability. Using data for 66 countries over the sample period, 1955-1985, Chowdhury finds there exists a positive relationship between the rate of inflation and its variability. However, recent studies omitted from Chowdhury's review of the literature distinguish between inflation variability and inflation uncertainty. The recent literature indicates that inflation variability is unlikely a satisfactory proxy for inflation uncertainty. Therefore, Chowdhury's conclusions, especially from a policy perspective, may not hold. Inflation variability does not necessarily imply inflation uncertainty, nor the damaging effects on economic activity associated with inflation uncertainty. An alternative specification of the relationship between inflation and inflation variability is presented.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036849300000110