Examining the Inflation and Inflation Uncertainty Relationship for Turkic Republics: Further Evidence From Stochastic Volatility in Mean Model with Time-Varying Parameters

Abstract

The aim of this study is to investigate the dynamic nexus between inflation and inflation uncertainty for Turkic Republics-namely Azerbaijan, Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan-using the stochastic volatility in mean model with time-varying parameters, which is a new, more flexible and alternative model. To obtain reliable robust results to different approaches, the study also considers the conventional stochastic volatility in mean model with constant coefficient. Both models are estimated by means of Bayesian efficient Markov chain Monte Carlo (MCMC) sampling method. The findings indicate that the impacts of inflation uncertainty on inflation rates is positive and statistically significant for all Turkic Republics examined, with the more pronounced impact particularly for the economies ofTajikistan, Kazakhstan and Uzbekistan, whereas the one-period lagged inflation rates has a statistically insignificant impact on current inflation uncertainty for all the Turkic Republics considered. The findings provide important information to policy makers in the relevant Turkic Republics in terms of achieving price stability, thus ensuring macroeconomic stability and reaching the sustainable long-term economic growth rates.