Inflation and its associated uncertainty impose costs on real economic output in every economy. In developing economies, this welfare cost is higher than those obtainable in developed countries because inflation rate is still higher than desired, mostly double-digit in Africa. In contrast to conventional conditional mean approaches, this study employed quantile regressions and cross-sectional data from 44 African countries for the period 1986 to 2015 to examine the relationship between the level of inflation and inflation uncertainty. This study considers two measures of inflation – Inflation rate and mean inflation, and three different measures of inflation uncertainty – standard deviation, relative variation and median deviation of the inflation rate. The study found evidence of positive and significant association between inflation and its uncertainty across quantiles. It also found that higher inflation brings about more inflation variability, thereby supporting the Friedman-Ball hypothesis and on the other hand high inflation uncertainty prompts rises in inflation, confirming the Cukierman-Meltzer hypothesis. The study therefore recommend that policy makers should target low average inflation rates in order to reduce the negative consequences of inflation uncertainty, which in turn can improve economic performance in Africa.
Albulescu, C. T., Twari, A. V., Miller, S. M. and Gupta, R. (2015). Time-Frequency Relationship between Inflation and Inflation Uncertainty for the U.S.: Evidence from Historical Data. University of Pretoria, Department of Economics Working Paper Series, WP-91
Ball, L. (1992). Why does high inflation raise inflation uncertainty? Journal of Monetary Economy, 29(3):371–388.
Bamanga, M. A., Musa, U., Salihu, A., Udoette, U. S.,. Adejo, V. T., Edem, O. N., Bukar, H. and Udechukwu-Peterclaver, C. T. (2016). Inflation and Inflation Uncertainty in Nigeria: A Test of the Friedman’s Hypothesis. CBN Journal of Applied Statistics Vol. 7 No. 1, June
Barimah, A, and Amuakwa-Mensah, F. (n.d.). Does Inflation Uncertainty Decrease with Inflation? A Garch Model of Inflation and Inflation Uncertainty. Access from www.wami-imao.org/sites/default/files/journals/v12n2_unit2.pdf
Barro, R. and Gordon, D. (1983). A positive theory of monetary policy in a natural rate model. Journal of Political Economy, 91(4):589–610.
Bredin, D. and Fountas, S. (2010). US Inflation and inflation uncertainty in a historical perspective: The impact of recessions. Access from www.ucd.ie/t4cms/wp%2011-04%20Bredin%20Fountas2.pdf
Chowdhury, A. (2011). Inflation and Inflation-Uncertainty in India: The Policy Implications of the Relationship. Marquette University, Department of Economics Working Paper ?04
Chowdhury, A. (2014). Inflation and inflation-uncertainty in India: The policy implications of the relationship. J. Econ. Stud., 41, 71–86.
Cukierman, A. and Meltzer, A. (1986). A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information. Econometrica, 54(5):1099–1128.
Davis, G., and Kanago, B.(1992). Misspecification bias in models of the effect of inflation uncertainty. Economics Letters 38, 325-329
Dotsey, M.; Ireland, P. (1996). The welfare cost of inflation in general equilibrium. J. Monet. Econ. 37, 29–47.
Elder, J. (2004). Another perspective on the effects of inflation uncertainty. J. Money Credit Bank. 36, 911–928.
Falahi , M. A. and Hajamini , M. (2015). Relationship between Inflation and Inflation Uncertainty in Iran: An Application of SETAR-GARCH Model. Journal of Money and Economy, 10(2) Spring
Fang, W.S., Miller, S.M. and C.C. Yeh. (2007). Quantile Inferences for Inflation and Its Variability: Does a Threshold Inflation Rate Exist? Working paper, 200745 http://digitalcommons.uconn.edu/ econ_wpapers/200745
Fernández-Valdovinos, C. G. and Gerling, K. (2011). Inflation Uncertainty and Relative Price Variability in WAEMU Countries. IMF Working Paper, WP/11/59.
Ferreira, D. and Palma, A. A. (n.d). Inflation and Inflation Uncertainty in Latin America: A Time-Varying Stochastic Volatility in Mean Approach. Access from www.bcu.gub.uy/Comunicaciones/Jornadas%20de%20Economa/C3_Ferreira2016.pd
Fountas, S., Karanasos, M. and Karanassou, M. (2000). A GARCH Model of Inflation and Inflation Uncertainty with Simultaneous Feedback. Access from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=235310
Fountas, S.; Karanasos, M.; Kim, J. (2006). Inflation uncertainty, output growth uncertainty and macroeconomic performance. Oxford Bull. Econ. Stat. 68, 319–343.
Friedman, M. (1977). Nobel lecture: Inflation and unemployment. J. Polit. Econ. 85, 451–472.
Hachicha, A. and Lean, H. H. (2013).Inflation, Inflation Uncertainty and Output in Tunisia. Economics Discussion Papers, No 2013-1, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2013-1
Hegerty, S. W. (2012). Does High Inflation Lead to Increased Inflation Uncertainty? Evidence from Nine African Countries. African Economic and Business Review, 10(2)
Holland, S. (1995). Inflation and uncertainty: tests of temporal ordering, Journal of Money, Credit and Banking, 27, 827-37.
Javed, S. A., Khan, S. A., Haider, A. and Shaheen, F. (2012). Inflation and Inflation Uncertainty Nexus: Empirical Evidence from Pakistan. International Journal of Economics and Financial Issues. 2(3), pp.348-356
Koenker, R. (2005). Quantile Regression. Cambridge University Press. Pp116-149
Koenker, R. and Bassett, G. (1978). Quantile regression. Econometrica 46, 33-50.
Kuan, C. M. (2007). An Introduction to Quantile Regression. Access from avesbiodiv.mncn.csic.es
Lucas Robert, E., Jr. Inflation and welfare. Econometrica 2003, 68, 247–274
Mello, M. and Novo, A. (2002). The New Empirics of Economic Growth: Quantile Regression Estimation of Growth Equations. University of Illinois at Urbana-Champaign. www.econ.puc-rio.br
Nasr, A. B., Balcilar$, M., Ajmi, A. N., Aye, G. C., Gupta, R. and Eyden, R. V (2014). Causality between Inflation and Inflation Uncertainty in South Africa: Evidence from a Markov-Switching Vector Autoregressive Model. University of Pretoria Working Paper: 2014-53
Oteng-Abayie, E. F. and Doe, S. K. (2013). Inflation and inflation uncertainty in Ghana. E3 Journal of Business Management and Economics, 4(12). pp. 259-266
Pourgerami, A., and Maskus, K. (1987). The Effects of Inflation on the Predictability of Price Changes in Latin America: Some Estimates and Policy Implications. World Development 15, 287-290.
Sharaf, M. F. (2015). Inflation and Inflation Uncertainty Revisited: Evidence from Egypt. Economies 3, 128-146
Sintim-Aboagye, H. and Byekwaso, S. (2005). Inflation Uncertainty and Inflation: Implications of Adjustment and Economic Recovery Programs in Sub-Saharan Africa. Center for Economic Research on Africa.
Tsyplakov A.A. (2010). The Links between Inflation and Inflation Uncertainty at the Longer Horizon. Kiev: EERC, Working paper No10/09E
Ungar, M. and Zilberfarb, B. Z. (1993). Inflation and its unpredictability- theory and empirical evidence. Journal of Money, Credit and Banking, 25:709 - 720
Yeh, C. C., Wang, K. M. and Suen, Y. B. (2009). Quantile Analysis the dynamic linkage between inflation uncertainty and inflation. Problems and Perspectives in Management, 7(1).
Alimi, R. S. (2017). Inflation Rates and Inflation Uncertainty in Africa: A Quantile Regression Approach. International Journal of Academic Research in Business and Social Sciences, 7(11), 858-872.
Copyright: © 2018 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode
