Abstract
M.Comm. (Financial Economics)
This dissertation examines the relationship between inflation, inflation uncertainty, and
economic growth using quarterly data for South Africa covering the period 1960-2012. Inflation
uncertainty is estimated using the Generalized Autoregressive Conditional Heteroscedasticity
modelling framework. Granger methods are employed in order to investigate the interaction
between inflation, inflation uncertainty, and economic growth. The presence of structural change
is investigated through dummy variables representing changes in monetary policy regime. No
evidence is found of any significant structural change in either inflation or inflation uncertainty.
Granger results indicate that inflation uncertainty has a negative impact on inflation, supporting
Holland’s (1995) argument of stabilising central bank behaviour. Conversely, there is evidence
that high inflation leads to elevated inflation uncertainty, in accordance with Friedman’s (1977)
hypothesis. Inflation uncertainty does not have a significant impact on economic growth in
South Africa. However, inflation does have an adverse effect on economic growth, whilst
economic growth exerts a positive impact on the rate of inflation. Lastly, economic growth does
not have any meaningful effect on inflation uncertainty.