The Nexus between Inflation and Inflation Uncertainty via wavelet approach: Some Lessons from Egyptian case

The nexus between inflation and its uncertainty has been a topic of wide dispute. Using wavelet decomposition and with special reference to Egypt for the period 1960-2013, we find that the focal relationship varies substantially among the different frequencies involved. There is no evidence of significant link in the short-run. In the medium term, higher inflation leads to greater volatility and in the long-run, inflation expands inflation uncertainty and vice versa. The main causes of these mixed outcomes have been organized into demand pull factors, cost push ones and conflicting underlying objectives needed to attenuate the detrimental effects of the deeper political instability that unfolded since 25th January 2011.