Inflation and Inflation Uncertainty in China

Abstract

Random fields regression model,a battery of tests for neglected nonlinearity based on the theory of random fields,Bayesian Estimation were combined to investigate the relationship between inflation and inflation uncertainty in China since January 1990.The results show that the relationship between two variables is an asymmetric U-shaped curve,convincingly support Friedman's hypothesis that a rise in the inflation rate increases inflation uncertainty.Turning to Cukierman-Meltzer's hypothesis,the relationship between two variables is down U-shaped curve,where the left side has positive but the right side has negative effects.