The effects of inflation uncertainty: some international evidence

Purpose The purpose of this paper is to examine the effects of inflation uncertainty on real economic activity using data from four industrialised countries. Design/methodology/approach The paper uses the econometric framework developed by Elder in the context of a multivariate framework in which a structural vector autoregression (VAR) is modified to accommodate multivariate GARCH‐in‐mean (MGARCH‐M) errors. It calculates the impulse response functions for the multivariate GARCH(1,1)‐in‐mean VAR in order to see whether the specification captures the fundamental dynamics. Findings The results show that inflation uncertainty has differential effects on output growth across these countries. Originality/value In the context of multivariate GARCH(1,1)‐in‐mean VAR, this paper uses a non‐recursive identification scheme and separate identification for the large and small economies.