The Inflation-Output Variability Trade-off: OECD Evidence

This article employs a multivariate GARCH model to empirically estimate a possible trade-off between output variability and inflation volatility in light of OECD data over the 1984-2001 period. Statistical support for the hypothesized volatility trade-off is equivocal across countries. The mixed findings can be associated with central banks' varying monetary policy responses to exogenous shocks. The trade-off estimates are also found to be consistent with earlier studies that reveal different degrees of central bank commitment to price vis-à-vis output stability. (JEL "E30", "E58", "C32") Copyright 2004 Western Economic Association International.