The Asymmetric Effects and Spillovers of Inflation and Output Uncertainty Between the US and Euro Area

Abstract

Abstract

This paper uses GARCH in mean models to examine the potential transmission and asymmetry of output growth and inflation uncertainty across the United States  and the Euro Area . I employ quarterly data on output growth and inflation from 1970Q1-2012Q4. The results in respect to negative and positive shocks show that US output growth and inflation display asymmetric uncertainty.

 The US uncertainty has asymmetric effects on mean questions.  Within the Euro Area, while the coefficients detecting the asymmetric uncertainty are insignificant; a significant asymmetric affect can exist.  Results also yield that the inflation uncertainty spillover between the two regions is more significant than that of output growth. 

 US economic activity responds to Euro Area volatility at a higher speed, while the European economic activity is affected  by higher-order lags of US uncertainty.