Relationship between inflation rate and inflation uncertainty

To shed further light on the possible link between inflation rate and infla tion uncertainty, the paper explores the relationship for US monthly inflat ion over 1926 to 1992 with various ARFIMA-GARCH-type models. It found that the inflation affected its uncertainty weakly negatively whereas the uncert ainty affected the inflation insignificantly. The results were robust to th e high inflation period of the 1970s and the volatile period of 1929 to 194 5. It supports Engle's result that a high rate of inflation does not necess arily imply a high variance of inflation, unlike Friedman's view that a hig h rate of inflation leads to a high variance of inflation. (C) 2001 Elsevie r Science BY All rights reserved.