The Asymmetric Effects of Uncertainty on Inflation and Output Growth

We study the effects of growth volatility and inflation volatility on average rates of output growth and inflation for post-war U.S. data. Our results suggest that growth uncertainty is associated with higher average growth and lower average inflation. Inflation uncertainty is significantly negatively correlated with both output growth and average inflation. Both inflation and growth display evidence of significant asymmetric response to positive and negative shocks of equal magnitude.