AN EMPIRICAL INVESTIGATION OF THE EFFECTS OF INFLATION UNCERTAINTY ON ECONOMIC GROWTH IN IRAN

This paper investigates the relationship between inflation uncertainty and economic growth for the period of 1988-2007 by using quarterly data and applying GARCH-M model for Iranian economy. We estimate inflation uncertainty by assuming that uncertainty is due to shocks in the inflation process, and therefore measures inflation uncertainty by using the conditional variance of inflation. In this method, the GARCH model is applied to estimate a time-varying conditional residual variance. Our empirical evidence shows that inflation uncertainty does not affect the level of economic growth.