Inflation Uncertainty and Output

This chapter introduces the relationship between output and inflation, including the role of inflation uncertainty. Friedman (1977) argued that increased inflation uncertainty reduces the information function of price movements and hinders long-term contracting, thus potentially reducing real output growth, and high inflation leads to higher inflation uncertainty. The chapter uses a generalized autoregressive conditional heteroscedasticity-in-mean (GARCH-M) framework to investigate why price stability as a mandate for monetary policy authorities is significant. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.