The Impact of Inflation Uncertainty on Output Growth and Inflation in Thailand* Komain Jiranyakul and Timothy P. Opiela Received 24 February 2010; Accepted 24 May 2011 We explore the impact of inflation uncertainty on output growth in Thailand, an emerging market economy with moderate inflation. Inflation and output uncertainty are modeled in a bivariate constant conditional correlation generalized autore- gressive conditional heteroskedastic (AR(p)-cccGARCH(1,1)) specification. We include the exchange rate in the mean equations, and use the headline and core inflation rates and industrial production to generate inflation and output uncertainty series. These series are then used in Granger causality tests to make inferences about the effect of monetary policy-induced inflation uncertainty. Causality tests show a positive relation from inflation to inflation uncertainty. Additionally, increased inflation uncertainty decreases output. These results are consistent with real costs associated with moderate inflation. Finally, we find no evidence that monetary policy reduced these costs. Keywords: inflation uncertainty, output uncertainty, bivariate generalized autore- gressive conditional heteroskedastic model (GARCH). JEL classification codes: E52, C32. doi: 10.1111/j.1467-8381.2011.02062.x I. Introduction The published literature on inflation uncertainty is ultimately concerned with the adverse effect of inflationary monetary policy on the real economy. Although the empirical literature provides abundant evidence of a strong link between inflation and inflation uncertainty, few studies explore the implied impact of inflation uncertainty on output. The present paper examines whether inflation uncertainty affects output growth and output uncertainty in Thailand for the period 1993 to 2008. Our paper contributes to the inflation uncertainty literature by focusing on the real effects of inflation uncertainty in an emerging market economy with moderate inflation. We also distinguish our work from other inflation uncertainty studies that focus on emerging market economies by controlling for factors that affect inflation, but that are independent of discretionary monetary policy, thus *Jiranyakul: School of Development Economics, National Institute of Development Administra- tion, Bangapi, Bangkok 10240, Thailand. Email: komain_j@hotmail.com. Opiela (corresponding author): Kellstadt Graduate School of Business and Department of Economics, DePaul University, Chicago, IL 60604, USA. Email: topiela@depaul.edu. We would like to thank the anonymous referee for suggestions that sharpened the focus and greatly improved the quality of this paper. Asian Economic Journal 2011,Vol. 25 No. 3, 291–307 291 © 2011 The Authors Asian Economic Journal © 2011 East Asian Economic Association and Blackwell Publishing Pty Ltd