The paper uses monthly data of money and consumer price index from January 1988 to December 1998 for Taiwan. We use GARCH(1, 1) models to generate our measure of money volatility and then test the short-run dynamic relationship between money volatility and inflation, instead of money and inflation. From our empirical results, we may reasonable conclude money volatility has significant, and positive effect on inflation. Furthermore, from the extensive study of impulse response functions, the results reveal that inflation reacts immediately and dramatically for monetary volatility shocks, which are also different from monetary shocks on inflation. It reveals that stable monetary policy will be better for economy, since uncertainty of money will cause inflation and fluctuation of economy.
Journal of information & optimization sciences 24(2), pp.239-248