Dear Muhammed,
What do you mean by model, may you please explain more to give you my input?
Your econometric model should allow for testing the following main hypotheses within the framework of your topical issue:
1. Higher inflation uncertainty/volatility decreases economic growth.
2. Higher inflation uncertainty/volatility reduces average inflation.
3. Higher output uncertainty/volatility increases average inflation.
4. Higher output uncertainty/volatility increases economic growth.
Friedman (1977), Holland (1995), Devereux (1989), and Black (1987) put forward above mentioned hypotheses one, two, three, and four, respectively.
As far as the models are concerned, the GARCH-type models have been widely used to proxy uncertainty/volatility and to investigate the link between these two variables (see, for example, Grier et al., 2004; Narayan et al., 2009).
Nevertheless, to make the empirical approach more attractive, you may consider exploring the relationship between these variables within the stochastic volatility model framework. To the best of my knowledge, no study has investigated this topical issue by employing multivariate stochastic volatility models.
References
Black, F., 1987. Business cycles and equilibrium. New York: Basil Blackwell.
Devereux, M., 1989. A positive theory of inflation and inflation variance. Economic Inquiry, 27, 105-116.
Friedman, M., 1977. Nobel lecture: Inflation and unemployment. Journal of Political Economy, 85, 451-472.
Grier, K.B., Henry, Ó.T., Olekalns, N., Shields, K., 2004. The asymmetric effects of uncertainty on inflation and output growth. Journal of Applied Econometrics, 19, 551-565.
Holland, A.S., 1995. Inflation and Uncertainty: Test for Temporal Ordering. Journal of Money, Credit and Banking, 27, 827-837.
Narayan, P.K.; S. Narayan; and R. Smyth., 2009. Understanding the Inflation-Output Nexus for China. China Economic Review, 20, 82-90.
I think you may try to read one of my research papers on a little similar project may be the model can help.
PDF Available
”The Relationship Between Interest /Federal Funds Rate and Unemployment Rate in American Economy Outlooks”
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