Inflation, inflation uncertainty and output growth: what does the data say for Malaysia?
Abstract
Purpose
The purpose of this paper is to examine the causal relationships between inflation, output growth and their uncertainties in Malaysia.
Design/methodology/approach
The modeling approach allows for structural breaks to avoid the masking of specific impacts.
Findings
Based on the asymmetric Generalized Autoregressive Conditional Heteroskedasticity model, the paper found strong evidence favoring a positive effect of a change in the inflation uncertainty as predicted by the Friedman-Ball hypothesis. In addition, inflation (inflation uncertainty) has direct (indirect) negative effect on the output growth. The results are consistent with the Taylor effect – increases in inflation uncertainty decreases output uncertainty. The analysis also reveals that economic uncertainty lowers the growth rate of output, complying with Bernanke's idea.
Originality/value
The present study suggests that extra efforts are required to locate the breaks in the variance in order to draw concrete evidence on link between economic uncertainty and macroeconomic performance.
Keywords
Acknowledgements
JEL Classifications — C22, E31, E52, G01
The authors thank the comments from two anonymous referees, and the Editor of this Journal who made interesting suggestions/comments. The research is part of studies conducted in Universiti Putra Malaysia on inflation uncertainty and economic growth in developing countries [Grant No: 06-01-12-1658RU]. All usual disclaimers apply.
Citation
Zubaidi Baharumshah, A. and Soon, S.-V. (2014), "Inflation, inflation uncertainty and output growth: what does the data say for Malaysia?", Journal of Economic Studies, Vol. 41 No. 3, pp. 370-386. https://doi.org/10.1108/JES-05-2012-0073
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited