Inflation, Inflation Uncertainty and Macroeconomic Performance in Australia

Using quarterly data this study finds that inflation uncertainty have negative and significant effects on inflation and output growth at least after the inflation targeting. We also find that output uncertainty has negative and significant effect on inflation. The study uses a newly constructed oil price dummy variable as a control variable and finds that oil price changes significantly increase the inflation uncertainty. These findings are robust and the Generalised Impulse Response Functions corroborate the conclusions. These results have important implications for inflation targeting (IT) monetary policy, and the aim of stabilisation policy in general.