Asymmetry Effect of Inflation on Inflation Uncertainty in Iran: Using from EGARCH Model, 1959-2009

Abstract

Problem statement: In this study, we tried to examine the relationship between inflation and inflation uncertainty in Iran, because of considerable variation in its inflation rate. Approach: Inflation uncertainty is the major cost of high inflation that can influence the decision making of economic agents. Results: This study constructed a time series of seasonally inflation uncertainty in Iran from 1959-2009 and investigated the relationship between inflation and inflation uncertainty. We modeled inflation uncertainty at time varying process through EARCH framework. Also, the asymmetric and consistence behavior of inflation uncertainty was analyzed by using this method. The result showed that there was an asymmetric relationship between inflation and inflation uncertainty and shocks inflation uncertainties do not die out rapidly. Thus, the positive shocks had a greater effect on uncertainty rather than negative shocks. In final, we investigated from the Granger Causality test that inflation was Granger Causality of inflation uncertainty. Conclusion/Recommendations: The results of study recommend to aiming at low average inflation rates in order to reduce the negative consequences of inflation uncertainty.