The effects of real and nominal uncertainty on inflation and output growth: Some GARCH-M evidence

In this paper we use GARCH-M methods to test four hypotheses about the effe cts of real and nominal uncertainty on average inflation and output growth in the United States from 1948 to 1996. We find no evidence that higher inf lation uncertainty or higher output growth uncertainty raises the average i nflation rate. We also find no support for the idea that more risky output growth is associated with a higher average real growth rate. Our key result is that in a variety of models acid sample periods, inflation uncertainty significantly lowers real output growth. Copyright (C) 2000 John Wiley & So ns, Ltd.