MODELING INFLATION UNCERTAINTY AND THE EFFECT OF GOVERNMENT BOND RATES: A CASE STUDY OF GREECE

This paper aims to investigate the relationship among inflation, inflation uncertainty and government bond rates in the Greek economy in the last 19 years. The method adopted is the E-GARCH technique in order to capture the conditional variance of inflation shocks, while the VAR method is used with the purpose of examining any signs of granger causality issues. Causality analysis shows a strong relationship between government bonds to inflation, between government bonds and inflation uncertainty, and between inflation and inflation uncertainty. Furthermore, generalized impulse response analysis is implemented which shows a strong causational relationship between government bonds-inflation and government bonds-inflation uncertainty.