Inflation targeting and their impact on inflation uncertainty: empirical evidence for Latin America and Southeast Asia

Abstract

The feedback relationship between inflation and inflation uncertainty was studied; in addition, the asymmetric effects of good and bad news in determining the conditional variance of inflation were estimated; as well as the impact that the adoption of Inflation Targeting (IT) regime has had on mitigating inflation uncertainty. For this purpose, the research focused on two groups of economies: i) the Latin American region (Colombia, Mexico, Peru and Uruguay); and the Southeast Asian region (South Korea, the Philippines, Indonesia and Thailand). The econometric methodology proposes a SARIMA scheme . Empirical evidence shows compliance with the Cukierman and Meltzer hypothesis for Mexico, Peru, Uruguay, South Korea, the Philippines, Indonesia and Thailand; while, compliance with the Friedman and Ball hypothesis is presented in Colombia, Mexico, Peru, Uruguay, the Philippines and Thailand. Finally, it was identified that after the adoption of the IT regime the persistence of inflationary uncertainty has decreased in all the economies analyzed; but with better results for Asian economies in the main macroeconomic aggregates.