Inflation targeting and the inflation-inflation uncertainty relationship: evidence from Thailand

This study extends the literature on the relationships between inflation and inflation volatility by examining the impact of inflation targeting on inflation volatility in Thailand. The ARIMA-GARCH model reveals that inflation targeting marginally reduced the degree of volatility persistence in response to inflationary shocks (i.e. inflation uncertainty). Granger-causality tests show that an increase in inflation causes an increase in inflation uncertainty. However, an increase in inflation uncertainty causes a decrease in inflation. Thus, the relationship between inflation and inflation uncertainty in Thailand support Holland's (1995) stabilization hypothesis.