Inflation and Inflation Uncertainty in Iran: A New Approach to the Study of Interactive Communication

consequences have the major importance but the study of the relationship between inflation and inflation uncertainty is important as well since one of the major consequences of inflation may be the uncertainty about the future inflation. In fact, inflation uncertainty is a part of unpredictable future inflation rate that can add the consequences of the negative effects of inflation on economic variables because, by their decisions and actions, the economic agents may reduce or destroy the costs of the predicted part of the inflation. But the inflation uncertainty is the unpredictable part of the inflation. Inflation uncertainty has had great effects on labor supply, savings, investment, economic growth and etc. and following these, other economic variables are influenced as well. There are two major views on the relationship between inflation and inflation uncertainty: the first one being Friedman-Ball hypothesis, and the second Cukierman-Meltzer hypothesis. In this article, two different theoretical view points are studied and finally by the help of autoregressive conditional heteroskedasticity (ARCH) model and its generalized form, i.e., (GARCH), a unidirectional relationship from inflation to inflation uncertainty or vise versa and the probability of a bilateral relationship between these two variables in economics of Iran and during the years between 1315- 1382 have been analyzed. The relationship between these two variables have been studied in the short-, middle-, and long-run and the results obtained support the existence of a unidirectional relationship from inflation to inflation uncertainty. For the short-run, this relationship is more intensive than long-run. In the study of the effects of inflation shocks on inflation uncertainty, it can be said that inflation shocks had had a symmetric effect on inflation uncertainty in the short-run but asymmetric one in the long run and then the positive shocks will have greater effect on the inflation uncertainty than the negative shocks in the long-run.