On the inflation-uncertainty hypothesis in Jordan, Philippines and Turkey: A long memory approach

Abstract

The aim of this paper is to test the Friedman [Friedman, M. (1977) Nobel lecture: Inflation and Unemployment. Journal of Political Economy, 85, 451–472] hypothesis that higher inflation causes more inflation uncertainty and the Cukierman and Meltzer [Cukierman, A. & A. Meltzer (1986) A theory of ambiguity, credibility, and infation under discretion and asymmetric information, Econometrica, 54, 1099–1128] hypothesis that higher inflation uncertainty leads to more inflation, both for the Jordanian, Philippine and Turkish economy. This paper uses a parametric model of long memory in the conditional mean of inflation and a generalised autoregressive conditional heteroskedasticity (GARCH) model to measure inflation uncertainty and to examine the relationship between inflation and inflation uncertainty in Jordan, Philippines and Turkey. The inflation series used in this paper is based on the rate of the change of the monthly seasonally adjusted consumer price index (CPI) and covers the period from 1987:02 to 2003:11. The empirical findings of this paper conform to the Friedman hypothesis; however, there is weak evidence to support the Cukierman–Meltzer hypothesis.