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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 15, No. 1, pp.79-99
ISSN: 1225-0279 (Print)
Print publication date 28 Feb 2002
Received 08 Jul 2002 Revised 12 Nov 2002

A Bivariate ARFIMA-IGARCH-M Modelling of the Effects of Uncertainty on Inflation and Output Growth

Sang-Kuck Chung
Associate Professor, School of Economics and International Trade, Inje University, 607 Obang-dong Kimhae, KyoungNam 621-749, Korea, Tel: +82-55-320-3124, Fax: +82-55-337-2902 tradcsk@ijnc.inje.ac.kr

JEL Classification: C22, C32, E31

Abstract

The main contribution of this paper is to use bivariate ARFIMA-IGARCH-M methods to test four hypotheses about the effects of real and nominal uncertainty on average inflation and output growth in the Korean economy from 1970 to 2002. According to sample types, empirical results show different effects of uncertainty on inflation and growth. Using the producer prices and wholesale prices index, we support all hypotheses considered except Friedman's and reject the Cukierman and Meltzer hypothesis only using consumer prices index.

Keywords:

Uncertainty, Inflation, Output growth, Bivariate ARFIMA-IGARCH-M model

Acknowledgments

I am grateful to anonymous referees, whose comments and suggestions greatly improved this paper. Of course, they are not responsible for its remaining deficiencies. I would like to thank seminar participants for their helpful comments at Institute for International Area Studies, Pusan National University. I also gratefully acknowledge financial support from the Korea Research Foundation Grant#KRF-2001-003-C00153.

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