Inflation, Inflation Instability and Nominal Uncertainty in Bulgarian Economy

The main goal of the paper is to assess the relationship between inflation, inflation instability and nominal uncertainty in the Bulgarian economy in January 2000 – May 2022. Employing the ARCH model, GARCH-M model, EGARCH model and Granger Causality Test we find a two-way causal relationship between inflation and inflation instability. Initially, inflation provokes inflation instability, and inflation instability provokes inflation consequently. Nominal uncertainty is measured by wavelet analysis, which establishes the presence of nominal uncertainty in the Bulgarian economy. Therefore, at certain lags, the inflation instability is transformed into nominal uncertainty. The empirical evidence raises the question of the effectiveness of the Currency Board Arrangements in Bulgaria.