The Interaction between Inflation and Inflation Uncertainty : A Multivariate Time-Varying Asymmetric Approach

In the present study, we examine the relationship between inflation and inflation uncertainty using monthly Consumer Price Index for Tunisian, Turkish and Egypt covering the period 1990:M1-2014:M12. We adopt a multivariate asymmetric dynamic conditional correlation EGARCH framework. The empirical results suggest asymmetric responses in correlations among the three inflation rates. The A-DCC model allows for conditional asymmetries in covariance and correlation dynamics, thereby enabling to examine the presence of asymmetric responses in correlations during periods of negative shocks. Results indicate that the decreasing inflation uncertainty is expected to reduce inflation. This seems a hard enough, especially with the political instability in the aftermath of revolution