Abstract
PurposeThe purpose of this paper is to examine the effects of inflation uncertainty on real economic activity using data from four industrialised countries.Design/methodology/approachThe 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.FindingsThe results show that inflation uncertainty has differential effects on output growth across these countries.Originality/valueIn 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.
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