VARIABILITY AND INFLATION - EVIDENCE FROM DEVELOPED AND DEVELOPING-COUNTRIES

Variations of a reduced-form equation for inflation determination are specified with ARCH processes for 34 countries. Results of testing for and estimation of the ARCH specifications show significant results in nearly half, but in five of those, tests suggest the presence of an AR(4) process which may invalidate the test for ARCH. Use of predicted conditional standard deviations of inflation, rather than the unconditional measure used previously, shows no evidence of a correlation of variability and inflation.