Advanced

Inflation and Inflation Uncertainty in Sweden: a GARCH Modelling Approach

Åkesson, Anna LU (2016) STAH11 20161
Department of Statistics
Abstract
This essay investigates inflation and inflation uncertainty in Sweden from 1970:Q1 to 2014:Q4. GARCH models are used to generate a measure of inflation uncertainty estimated under the distributional assumption of Student's t-distribution and GED. The preferable model found for Swedish inflation was a EGARCH(1,1) estimated with Student's t-distribution. The coefficient of the asymmetry in the conditional variance of the Swedish inflation series was found to be negative, thereby implying that a positive shock to the Swedish inflation leads to less uncertainty about inflation. Relating these results to the two competing hypotheses about the causal relationship between inflation and its uncertainty, the results in this essay does not support... (More)
This essay investigates inflation and inflation uncertainty in Sweden from 1970:Q1 to 2014:Q4. GARCH models are used to generate a measure of inflation uncertainty estimated under the distributional assumption of Student's t-distribution and GED. The preferable model found for Swedish inflation was a EGARCH(1,1) estimated with Student's t-distribution. The coefficient of the asymmetry in the conditional variance of the Swedish inflation series was found to be negative, thereby implying that a positive shock to the Swedish inflation leads to less uncertainty about inflation. Relating these results to the two competing hypotheses about the causal relationship between inflation and its uncertainty, the results in this essay does not support the Friedman-Ball hypothesis. With regards to the Cukierman-Meltzer hypothesis, the results seem to support a version of this hypothesis put forward by Holland (1995), referred to as the "stabilisation hypothesis" (Less)
Please use this url to cite or link to this publication:
author
Åkesson, Anna LU
supervisor
organization
course
STAH11 20161
year
type
M2 - Bachelor Degree
subject
keywords
Inflation, Inflation uncertainty, GARCH models, leverage effects.
language
English
id
8881325
date added to LUP
2016-07-05 08:48:59
date last changed
2016-07-05 08:48:59
@misc{8881325,
  abstract     = {This essay investigates inflation and inflation uncertainty in Sweden from 1970:Q1 to 2014:Q4. GARCH models are used to generate a measure of inflation uncertainty estimated under the distributional assumption of Student's t-distribution and GED. The preferable model found for Swedish inflation was a EGARCH(1,1) estimated with Student's t-distribution. The coefficient of the asymmetry in the conditional variance of the Swedish inflation series was found to be negative, thereby implying that a positive shock to the Swedish inflation leads to less uncertainty about inflation. Relating these results to the two competing hypotheses about the causal relationship between inflation and its uncertainty, the results in this essay does not support the Friedman-Ball hypothesis. With regards to the Cukierman-Meltzer hypothesis, the results seem to support a version of this hypothesis put forward by Holland (1995), referred to as the "stabilisation hypothesis"},
  author       = {Åkesson, Anna},
  keyword      = {Inflation,Inflation uncertainty,GARCH models,leverage effects.},
  language     = {eng},
  note         = {Student Paper},
  title        = {Inflation and Inflation Uncertainty in Sweden: a GARCH Modelling Approach},
  year         = {2016},
}