Is the relationship between inflation and its volatility asymmetric? US evidence, 1800-2016

This paper investigates the relationship between inflation and inflation volatility. Using annual data from 1800 to 2016, the results show that US inflation and its volatility have been positively correlated when inflation exceeds a certain value, but negatively correlated when inflation is below this threshold. The evidence also suggests that the break in the relationship occurs between annual inflation rates of 0.8% and 4.3%, which includes both the 2% inflation target of many central banks and the 3.5% break point predicted by the New Keynesian model of Coibion, Gorodnichenko, and Wieland (2012).