Inflation and Inflation Uncertainty in the Jordan Evidence from GARCH Modeling

Abstract

Among the harmful effects of inflation, the negative consequences of inflation volatility are of particular concern. These include higher risk premia, hedging costs and unforeseen redistribution of wealth, so that our study came to examines the relationship between Inflation and Inflation uncertainty for one of emerging country; Jordan by using monthly data from 1976:1 to 2013:12.
The maximum likelihood estimates from the GARCH model indicate strong support for the presence of a positive relationship between the level of inflation and its uncertainty. The Granger causality results report a feedback between inflation and uncertainty. With Granger causality running both ways, the Friedman-Ball and Cukierman-Meltzer hypotheses hold simultaneously in Jordan.
The results of this study may be useful for policymakers at central bank to devise more efficient monetary policy.

Key words: GARCH; Inflation; Inflation volatility