Inflation and inflation uncertainty

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Abstract

This article examines whether higher inflation has been associated with greater inflation uncertainty in the United Kingdom during the post-war period, using various descriptive and econometric estimates of uncertainty. Though the results cannot establish conclusively whether there has been a causal link, they do suggest that the level of inflation and inflation uncertainty are positively correlated. If inflation uncertainty is costly, this provides a potential justification for directing policy at establishing and sustaining an environment of low inflation.