Zorica Mladenovic

Relationship between Inflation and Inflation Uncertainty: The Case of Serbia

The purpose of this paper is to examine the relationship between inflation and inflation uncertainty in the Serbian economy, being particularly vulnerable to shocks in inflation rate, during transition period 2001-2007. Based on monthly data several GARCH specifications are estimated providing measure for inflation uncertainty. Derived variables are then included in VAR model to test for Granger-causality between inflation and its uncertainty. Models that consider only permanent and transitory components of prices are also estimated to investigate inflation-uncertainty relationship in the long and the short run. Main conclusion of the paper is that high inflation invokes high uncertainty, while high uncertainty negatively affects level of inflation at long horizon.

Econometric testing of uncovered interest rate parity in Serbia

This paper provides econometric evidence of the interest parity puzzle in Serbia over the period 2005–2016. Econometric findings are derived from the following techniques: long-run parameter estimation based on the autoregressive distributed lag model, impulse response function computed from the bivariate vector autoregressive model, and estimation of the two-regime Markov switching parameter model. Our results indicate that a positive interest differential corrected for country risk leads to significant dinar appreciation against the euro. The intensity of this impact is different across sub-periods of low exchange rate variability and high variability. Exchange rate movements are found to appreciate more strongly during lower variability episodes. Preliminary econometric investigation of four other European emerging economies documents similar findings only for Romania. Our results suggest that there is a huge incentive for shortterm carry trades in Serbia, regardless of substantial risks. shocks.