Work detail

The Inflation-Output Variability Relationship in the CEE countries: A Bivariate GARCH Model

Author: Mgr. Jozef Kubovič
Year: 2015 - summer
Leaders: PhDr. František Čech Ph.D.
Consultants:
Work type: Finance, Financial Markets and Banking
Masters
Language: English
Pages: 80
Awards and prizes:
Link: https://is.cuni.cz/webapps/zzp/detail/152113/
Abstract: This thesis examines the output-variability relationship and causal relationships among the inflation, the
output growth and their uncertainties for the Central and Eastern European region during the period of
time that covers the economic crisis of 2008. We apply the bivariate GARCH(1,1) model with the
constant conditional correlation covariance matrix to obtain conditional variances that proxy the two
uncertainties and use Granger causality test to determine the causal effects among four variables. We
come up with a number of interesting results. First, we did not find statistical evidence neither for the
inflation-output variability relationship nor for the Phillips curve. Second, we uncovered support for the
positive causal effect of the inflation on its uncertainty and negative causal effect for the reverse
direction. Additionally, we also found some support for the indirect negative causal effect of the
inflation on the output growth. These results support the policy of low and stable inflation in the
countries. Finally, we showed that crisis has a significant impact on the results, changing the behaviour
of conditional variances and causal effects among the variables.

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