The inflation and output variability tradeoff: evidence from a Garch model

This paper empirically investigates the possibility of a tradeoff between the variability of inflation and output gap over the period 1960-1997 in light of a bivariate GARCH model. There is strong evidence of temporal instability in the GARCH process, and the variability tradeoff is more apparent for the post-October 1979 subperiod. The slope of the tradeoff, nevertheless, appears to be considerably flat. (C) 1999 Elsevier Science S.A. All rights reserved.