Inflation and inflation uncertainty: evidence from the Caribbean region
Abstract
Purpose
The purpose of this paper is to extend the literature on the relationship between inflation and inflation uncertainty by examining three Caribbean countries: the Bahamas, Barbados, and Jamaica.
Design/methodology/approach
ARMA‐GARCH models are used to estimate inflation uncertainty along with Granger‐causality tests to infer the relationship between inflation and inflation uncertainty.
Findings
The results reveal that both the Bahamas and Jamaica exhibit a high degree of volatility persistence in response to inflationary shocks, while Barbados has a much lower persistence measure. Granger‐causality tests indicate that an increase in inflation has been a positive impact on inflation uncertainty for each country. However, an increase in inflation uncertainty yields a decrease in inflation in the case of Jamaica. In summary, the results for the Bahamas and Barbados support the Friedman‐Ball hypothesis, whereas the results for Jamaica support Holland's stabilization‐motive hypothesis.
Research limitations/implications
Future research on inflation and inflation uncertainty can be extended to incorporate possible regime shifts associated with fiscal and monetary policy.
Originality/value
The study fills a void in the literature with respect to the inflation‐inflation uncertainty nexus for Caribbean countries. The results of the paper may be useful to policymakers in the formulation of fiscal and monetary policy.
Keywords
Citation
Payne, J.E. (2008), "Inflation and inflation uncertainty: evidence from the Caribbean region", Journal of Economic Studies, Vol. 35 No. 6, pp. 501-511. https://doi.org/10.1108/01443580810916523
Publisher
:Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited