Inflation and Uncertainty: Does the EMS Participation Play Any Role? |
Nicholas Apergis |
University of Macedonia |
Copyright ©1998 Journal of Economic Integration |
ABSTRACT |
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This paper examines whether European Monetary System (EMS) membership has affected the link between inflation and inflation uncertainty. ARCH measures of conditional inflation volatility and Granger-causality tests for nine OECD countries over the period 1980-1994 indicate that in non-EMS countries - in these countries a monetary target seems to have been closely followed - inflation seems to determine the behaviour of inflation uncertainty. By contrast, in EMS countries - these countries have geared their monetary policies to an exchange rate target - inflation seems to have no impact on inflation uncertainty. This finding is probably due first, to the absence of any institutional restriction that characterises non-EMS membership, on the manner the monetary policy is pursued, and second, to the fact that under a monetary rule, any institutional or regulatory changes in the monetary sector are expected to fall more adversely upon inflation as well as inflation uncertainty. (JEL Classi fication: E31) |
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