INVESTIGATION ON THE CAUSAL RELATIONSHIP BETWEEN INFLATION, OUTPUT GROWTH AND THEIR UNCERTAINTIES IN ROMANIA

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By: Mircea ASANDULUI, Carmen PINTILESCU, Elena-Daniela VIORICĂ, Dănuţ-Vasile JEMNA
JEL: E31, E50
Keywords: output growth, inflation, uncertainty, heteroskedastic models

Based on monthly-recorded data for the 1990-2014 period related to output growth and inflation, we use heteroskedastic models in order to estimate the nominal and real uncertainty in Romania.  Real uncertainty is derived from output growth volatility and nominal uncertainty is derived from inflation volatility. Of the 12 possible hypotheses regarding causal relationships between output growth, inflation, nominal uncertainty and real uncertainty, we consider 7 hypotheses for which we find strong theoretical arguments and empirical evidence in literature. In order to ensure the robustness of the results, the Granger-causality tests are performed for 4, 8 and 12 lags, which are then used to test 7 economic hypotheses.