A Bivariate ARFIMA-IGARCH-M Modelling of the Effects of Uncertainty on Inflation and Output Growth

Abstract

The main contribution of this paper is to use bivariate ARFIMA-IGARCH-M methods to test four hypotheses about the effects of real and nominal uncertainty on average inflation and output growth in the Korean economy from 1970 to 2002. According to sample types, empirical results show different effects of uncertainty on inflation and growth. Using the producer prices and wholesale prices index, we support all hypotheses considered except Friedman's and reject the Cukierman and Meltzer hypothesis only using consumer prices index.