| Abstract: | We revisit the relationship between inflation and inflation uncertainty by a nonlinear flexible regression model of four economies in East Asia, that is, Taiwan, Hong Kong, Singapore, and South Korea. Two hypothesis will be examined. One hypothesis is proposed by Friedman (1977). He argued that increased inflation could raise inflation uncertainty. The other hypothesis is provided by Cukierman and Meltzer (1986), they argued that high level of inflation uncertainty will cause higher rate of inflation. We find overwhelming statistical evidences in favor of Friedman’s hypothesis except for Hong Kong. The nonlinearity displays an U shape pattern, implying that high rate of inflation or deflation will cause high inflation uncertainty. On the other hand, Cukierman-Meltzer''s hypothesis is also evidenced for all four economies. Hong Kong, Singapore, and South Korea have a positive relation in favor of Cukierman-Meltzer''s hypothesis, while Taiwan has an inverted-U shape.
We revisit the relationship between inflation and inflation uncertainty by a nonlinear flexible regression model of four economies in East Asia, that is, Taiwan, Hong Kong, Singapore, and South Korea. Two hypothesis will be examined. One hypothesis is proposed by Friedman (1977). He argued that increased inflation could raise inflation uncertainty. The other hypothesis is provided by Cukierman and Meltzer (1986), they argued that high level of inflation uncertainty will cause higher rate of inflation. We find overwhelming statistical evidences in favor of Friedman’s hypothesis except for Hong Kong. The nonlinearity displays an U shape pattern, implying that high rate of inflation or deflation will cause high inflation uncertainty. On the other hand, Cukierman-Meltzer''s hypothesis is also evidenced for all four economies. Hong Kong, Singapore, and South Korea have a positive relation in favor of Cukierman-Meltzer''s hypothesis, while Taiwan has an inverted-U shape. |
