Macroeconomic Uncertainty and Performance in Asian Countries

We use a very general bivariate GARCH-M model and quarterly data for five Asian countries to test for the impact of real and nominal macroeconomic uncertainty on in°ation and output growth. We conclude the following. First, in the majority of countries uncertainty regarding the output growth rate is related negatively to the average growth rate. Second, contrary to expectations, infation uncertainty in most cases does not harm the output growth perfor- mance of an economy. Third, in°ation and output uncertainty have a mixed effect on inflation. Consistent results are found using the VAR-GARCH-M approach to investigate the dynamic relationship between in°ation and output growth using impulse response functions. This evidence implies that macroeconomic uncertainty may even improve macroeconomic performance, i.e., raise output growth and reduce inflation. Our empirical results highlight important differences with those for industrialized countries.