The Causality between Inflation, Economic Growth, Oil Price and their Uncertainties: A Trivariate GARCH Evidence of Iran

This study investigates the causality between inflation, economic growth, oil price and their uncertainties using a Trivariate GARCH model. The results show that an increase in inflation raises inflation uncertainties (Friedman (1977) and Ball (1992) hypothesis). An increase in economic growth also raises real uncertainty. A higher economic growth uncertainty results in both higher inflation (Deveraux (1989), Cukierman and Gerlach (2003) hypothesis) and higher economic growth (Mirman (1971), Black (1987) and Blackburn (1999) hypothesis). Holland (1995) hypothesis, i.e. a negative causality from inflation uncertainty to inflation cannot be rejected at the 10% level of significance for 8th lag. There seems to be a negative causality from oil price uncertainty to economic growth (Pindyck (1991), Ferderer (1996) and Barsky and Kilian (2004) hypothesis). An increase in oil prices raises economic growth and decrease inflation in the short run. There is no strong empirical evidence in favor of other causality relations.