The Impact of Inflation and Its Uncertainty on Pharmaceutical Prices: Evidence from Iran.

رابطه میان تورم و نااطمینانی آن می تواند تحت تأثیر رژیم های تورمی مختلف قرار گیرد . تحقیقات انجام شده در ایران، نقش این رژیم ها در ارتباط پویای تورم و نااطمینانی را بررسی نکرده اند. به‌منظور پرکردن این خلأ در ادبیات اقتصاد ایران، این مقاله به مطالعه رابطه میان تورم و نااطمینانی آن با وجود انتقال رژیم و با توجه به رفتار نامتقارن الگو می پردازد. برای دستیابی به این هدف از تبدیل مارکوف در چارچوب یک الگوی تعمیم یافته گارچ نامتقارن استفاده می گردد. به این منظور دو معادله به ترتیب برای تورم و نااطمینانی آن، برای دوره (2013:07-1990:03) برآورد می گردد. معادله اول تحت دو رژیم فشار تورمی فزاینده وکاهنده و معادله دوم رفتار در دو وضعیت نوسانات تورمی زیاد و کم برآورد می شود. برآوردها نشان می دهد که اثر نااطمینانی تورم بر سطح تورم در رژیم فشار تورمی فزاینده، مثبت اما در رژیم فشار تورمی کاهنده، منفی است. همچنین در وضعیت نوسانات تورمی زیاد، افزایش تورم باعث ازدیاد نااطمینانی اما در وضعیت نوسانات تورمی کم، سطح تورم بر نااطمینانی تورم تأثیری ندارد. اثرات تکانه های مثبت قیمتی بر نااطمینانی بیش تر از تکانه های منفی می باشد و احتمال ماندگاری در هر وضعیت تورمی در ایران بالا است. با توجه به نتایج، به نظر می رسد که اتخاذ سیاست های تثبیت قیمت ها نه‌تنها در کاهش تورم بلکه در کاهش نااطمینانی تورم نیز نقش مهمی دارند؛ بنابراین، پیشنهاد می گردد که دولت و به‌ویژه بانک مرکزی از اتخاذ سیاست های اقتصادی که به نااطمینانی تورم دامن می زند، اجتناب نماید. ازجمله نتایج مهم دیگر این تحقیق که باید مورد توجه مسئولین پولی قرار گیرد، اهمیت تشخیص درست و به‌موقع نوع رژیم تورمی کشور برای اتخاذ سیاست مناسب است.

This study examines the relationship between inflation uncertainty and price components in general price level. It examines which price components at general price level cause inflation uncertainty, and also which price components are more affected by such uncertainty. The Turkish economy is observed with regard to the time period between January 2003 and September 2011, and inflation uncertainty is obtained by being defined as conditional variance within the inflation process, which itself is estimated according to not only a function of its past values, but also a set of data including money supply, industrial production index, exchange rate, and interest rate. The relationship between price components and inflation uncertainty is analysed, using Granger Causality Test, Impulse Response and Variance Decompositions Analysis. As per the findings, the effect of inflation uncertainty on the price components of general price level, and similarly, the effects of price components of general price level on the inflation uncertainty differ.

We useGranger causality tests within a conditionalGaussianMarkov switching vector autoregressive (MS‐VAR) model using monthly data forG‐7 countries covering the period 1959:12–2008:10 to examine the relationship between inflation and inflation‐uncertainty. TheMS‐VARmodel allows us to model parameter time‐variation so as to reflect changes in Granger causality, assuming that these changes are stochastic and governed by an unobservableMarkov chain. Inflation uncertainty is measured as the conditional variance generated by a Fractionally Integrated Smooth Transition Autoregressive Moving Average‐Asymmetric PowerARCH(FISTARMA‐APARCH) model. The distinguishing feature of our approach from the previous studies is the determination of the sign of theGranger causality relationship between inflation and its uncertainty over time. First, using a rollingVARmodel, we show that the relationship between inflation and inflation uncertainty is time varying with frequent breaks. Second, using theMS‐VARmodel, we obtain strong evidence in favour of theHolland's ‘stabilizing Fed hypothesis’ forCanada,France,Germany,Japan,UnitedKingdom, and theUnitedStates. We also find evidence in favour of theFriedman hypothesis forCanada and theUnitedStates.

Inflation uncertainty causes macroeconomic ills and instability in the economy. This paper investigates if rising levels of inflation uncertainty serve as a source of higher inflation outcomes or vice versa, to determine if inflation uncertainty is potentially a self‐fulfilling prophecy. In addition, this paper examines the impact of inflation targeting, implemented in South Africa in February 2000, on the level of inflation and inflation uncertainty. Using a generalised autoregressive conditional heteroskedasticity (GARCH) and GARCH‐in‐mean model and monthly data spanning the period 1970:01 to 2022:05, the empirical outcomes from this study suggest the existence of a bi‐directional relationship between inflation and inflation uncertainty, with strong evidence in favour of the Friedman–Ball hypothesis and weaker evidence in support of the Cukierman–Meltzer hypothesis. This study also finds that inflation targeting has contributed significantly to reducing the level of inflation and inflation uncertainty since its adoption as policy framework. Time‐varying Granger causality tests accounting for instabilities underscore the above results, namely that inflation uncertainty led to increased inflation uncertainty in the full pre‐inflation targeting period, whereas increased uncertainty led to increased inflation only during the decade preceding inflation targeting. The results heed important policy implications, as it is imperative that inflation is kept low, stable and predictable.

This paper studies the impact of inflation on inflation uncertainty in a modelling framework where both the conditional mean and conditional variance of inflation are regime specific, and the GARCH model for inflation uncertainty is extended by including a lagged inflation term in each regime. Applying this model to the G7 countries with monthly data from 1970 till 2013, it is found that the impact of inflation on inflation uncertainty differs over the regimes in most of the G7 countries. The findings also provide strong empirical support to the well-known Friedman-Ball hypothesis of positive impact of inflation on inflation uncertainty, but only for the high-inflation regime.

PurposeThe purpose of this paper is to establish a link between inflation uncertainty and interest rates for five inflation‐targeting countries.Design/methodology/approachThe approach takes the form of a time‐varying parameter model with a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) specification, used to derive impulse uncertainty and structural uncertainty.FindingsThis study attempts to establish a link between inflation uncertainty and interest rates for five inflation‐targeting countries, i.e. Canada, Finland, Spain, Sweden, and the UK. Decomposing inflation uncertainty into two components – impulse and structural, a positive association was found between the expected inflation and interest rates. Structural uncertainty has a positive and significant effect on interest rates for some countries. It has also been found that the long‐run effects of inflation on interest rates are less than unity for the post‐inflation targeting period, which implies that in some respect the Central Bank has been successful in targeting inflation. This has allowed the Central Bank to employ a less restrictive monetary policy in an environment of a credible inflation‐targeting strategy.Research limitations/implicationsExponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) can be used instead of GARCH modelling.Originality/valueThis is the first study that has tried to establish the link between different types of inflation uncertainty and interest rates for the inflation‐targeting countries to see the effect of inflation targeting.

This study analyses the dynamics of inflation and inflation uncertainty in Pakistan, while inflation has been disaggregated into food inflation and non-food inflation from July 1998 to March 2018. The study follows two step procedure, an ARMA-GARCH model is used in the first step with the generated conditional variance used as measure of inflation uncertainty, while Granger causality test is performed in the second step to find the relationship between the variables. Mean equation of inflation, food inflation, and non-food inflation show that past inflation has significant effect on current inflation, while variance equation shows high persistence of inflation. Unidirectional causality exists from inflation to inflation uncertainty as well as from food inflation to food inflation uncertainty and supports the Friedman-Ball hypothesis. Monetary authorities have to adopt price stability as the primary objective, while core inflation has to be taken as a target of monetary policy, instead of headline inflation.

The welfare costs of inflation and inflation uncertainty are well documented in the literature and empirical evidence on the link between the two is sparse in the case of Egypt. This paper investigates the causal relationship between inflation and inflation uncertainty in Egypt using monthly time series data during the period January 1974–April 2015. To endogenously control for any potential structural breaks in the inflation time series, Zivot and Andrews (2002) and Clemente–Montanes–Reyes (1998) unit root tests are used. The inflation–inflation uncertainty relation is modeled by the standard two-step approach as well as simultaneously using various versions of the GARCH-M model to control for any potential feedback effects. The analyses explicitly control for the effect of the Economic Reform and Structural Adjustment Program (ERSAP) undertaken by the Egyptian government in the early 1990s, which affected inflation rate and its associated volatility. Results show a high degree of inflation–volatility persistence in the response to inflationary shocks. Granger-causality test along with symmetric and asymmetric GARCH-M models indicate a statistically significant bi-directional positive relationship between inflation and inflation uncertainty, supporting both the Friedman–Ball and the Cukierman–Meltzer hypotheses. The findings are robust to the various estimation methods and model specifications. The findings of this paper support the view of adopting inflation-targeting policy in Egypt, after fulfilling its preconditions, to reduce the welfare cost of inflation and its related uncertainties. Monetary authorities in Egypt should enhance the credibility of monetary policy and attempt to reduce inflation uncertainty, which will help lower inflation rates.

This study examines the causal nexus between inflation and inflation uncertainty. In this regard, conventional Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models and Stochastic Volatility (SV) models are used to measure inflation uncertainty and Bai and Perron (Econometrica 66:47–78, 1998; J Appl Econom 18:1–22, 2003) test is used to identify structural breaks in inflation. The empirical evidence derived from the monthly data for the period from June 1961 to April 2011 suggests that the measure of inflation uncertainty obtained from SV model is more reliable than the measure obtained from GARCH model and also the causal nexus between inflation and inflation uncertainty seems to be significantly conditional upon the measure of uncertainty used. The structural break test identifies four episodes of inflation during the sample period, and the causality between inflation and its variability varies across different episodes. The inflation and its variance seem to be independent of each other during the first two regimes that cover the period from 1960 to 1980 and on the contrary, during the later period largely bidirectional causality is observed. Further, inflation seems to exert positive impact on inflation uncertainty, whereas inflation uncertainty has negative impact on inflation.

This article examines the relationship between inflation and inflationuncertainty in Iranian economy for the period 1369:1 to 1385:3 .The purpose of this study is to test the hypothesis that inflation uncertainty increases at higher levels of inflation. Analysis of this study is based on the generalized autoregressive conditional heteroscedasticity (which allow the conditional variance of the error term to be time-varying). Since this variance is a proxy for inflation uncertainty, a positive relationship between the conditional variance and inflation would be interpreted as an evidence that inflation uncertainty increases with the level of inflation. Our findings indicate that inflation causes inflation uncertainty as there is a significant positive relationship between inflation and inflation uncertainty. According to this result the role of Central Bank of Iran is so crucial in reducing inflation uncertainty by conducting proper policies.

This paper investigates how inflation and its uncertainty impact GDP growth in eight Central and Eastern European Countries. Inflation uncertainty series are created examining several GARCH models in combination with three different distribution functions, while the nonlinear effect of inflation and its uncertainty on GDP growth is assessed in the Bayesian quantile regression framework. We find that inflation has significantly smaller negative effect on GDP growth than inflation uncertainty, which confirms the Friedman hypothesis. This means that inflation in the selected countries has an indirect impact on GDP growth via inflation uncertainty. We find that countries with smaller economy, such as Latvia and Estonia experience more adverse effect from inflation uncertainty in both upturn and downturn conditions, probably because they are vulnerable to external inflationary shocks. As for the countries with bigger economy, inflation uncertainty shocks diminish GDP growth only in conditions when output growth is very low or negative.

This study examines the dynamic relationship between monthly inflation and inflation uncertainty in Japan, the US and the UK by employing linear and nonlinear Granger causality tests for the 1957: 01–2006: 10 period. Using a generalised autoregressive conditional heteroskedasticity (GARCH) model to generate a measure of inflation uncertainty, the empirical evidence from the linear and nonlinear Granger causality tests indicate a bidirectional causality between the series. The estimates from both the linear vector autoregressive (VAR) and nonparametric regression models show that higher inflation rates lead to greater inflation uncertainty for all countries as predicted by Friedman (1977). Although VAR estimates imply no significant impact, except for Japan, nonparametric estimates show that inflation uncertainty raises average inflation in all countries, as suggested by Cukierman and Meltzer (1986). Thus, inflation and inflation uncertainty have a positive predictive content for each other, supporting the Friedman and Cukierman-Meltzer hypotheses, respectively.

Problem statement: In this study, we tried to examine the relationship between inflation and inflation uncertainty in Iran, because of considerable variation in its inflation rate. Approach: Inflation uncertainty is the major cost of high inflation that can influence the decision making of economic agents. Results: This study constructed a time series of seasonally inflation uncertainty in Iran from 1959-2009 and investigated the relationship between inflation and inflation uncertainty. We modeled inflation uncertainty at time varying process through EARCH framework. Also, the asymmetric and consistence behavior of inflation uncertainty was analyzed by using this method. The result showed that there was an asymmetric relationship between inflation and inflation uncertainty and shocks inflation uncertainties do not die out rapidly. Thus, the positive shocks had a greater effect on uncertainty rather than negative shocks. In final, we investigated from the Granger Causality test that inflation was Granger Causality of inflation uncertainty. Conclusion/Recommendations: The results of study recommend to aiming at low average inflation rates in order to reduce the negative consequences of inflation uncertainty.

This article assesses the interaction between inflation and inflation uncertainty in a dynamic framework for Turkey by using monthly data for the time period 1984–2009. The bulk of previous studies investigating the link between inflation and inflation uncertainty employ Autoregressive Conditional Heteroskedasticity (ARCH)-type models, which consider inflation uncertainty as a predetermined function of innovations to inflation specification. The stochastic volatility in mean (SVM) models that we use allow for gathering innovations to inflation uncertainty and assess the effect of inflation volatility shocks on inflation over time. When we assess the interaction between inflation and its volatility, the empirical findings indicate that response of inflation to inflation volatility is positive and statistically significant. However, the response of inflation volatility to inflation is negative but not statistically significant.

On the real effects of inflation and inflation uncertainty in Mexico