Template-Type: ReDIF-Article 1.0

Author-Name: Chaoyi Chen
Author-Workplace-Name: Magyar Nemzeti Bank, Budapest Metropolitan University
Author-Email: chenc@mnb.hu
Author-Person: pch1967

Author-Name: Tamas Barko
Author-Workplace-Name: Quoniam Asset Management GmbH, Budapest Metropolitan University
Author-Email: tamas.barko@gmail.com
Author-Person:

Author-Name: Oliver Nagy
Author-Workplace-Name: Eotvos Lorand University
Author-Email: naolipth@gmail.com
Author-Person:

Title: Inflation and Uncertainty: Evidence from GARCH-MIDAS-in-Mean Modelling

Abstract: We revisit the relationship between inflation and inflation uncertainty using a novel
GARCH-MIDAS-in-Mean approach, which allows for the decomposition of inflation
uncertainty into short-term and time-varying long-term components. We test our
model on UK data. Our findings indicate that macroeconomic and financial variables
significantly influence the long-term component of inflation uncertainty. By enabling
long-term uncertainty to vary over time through MIDAS filtering, we show that
the evidence for past inflation raising short-run uncertainty weakens compared to
results that assume a constant long-term inflation uncertainty component. However,
our results support the Cukierman-Meltzer hypothesis, indicating that the impact
of inflation uncertainty on inflation becomes more robust and pronounced when
longer samples are used, although this effect is sensitive to structural breaks, such
as the VAT cut and the Covid-19 pandemic. Additionally, we find no evidence that
changes in inflation feed back into short-run uncertainty.

Classification-JEL: E31, E52, C22
Keywords: Inflation, Inflation uncertainty, GARCH-MIDAS models
Pages: 52-72
Volume: 24
Issue: 3
Year: 2025
File-URL: https://hitelintezetiszemle.mnb.hu/sw/static/file/fer-24-3-st3-chen-barko-nagy.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:24:y:2025:i:3:p:52-72