Inflation volatility is a serious problem in the conduct of monetary policy. This is becausernit makes economic planning difficult, affects investment decision and hence growth. Thisrnstudy is aimed at modeling inflation volatility and analyzes its effect on economic growthrnin Ethiopia. The study uses quarterly data on Consumer Price Index (CPI) and GrossrnDomestic Product (GOP) for the period 1991 /92 -2010/ 11 . To model inflation volatility asrntime varying process an extended form of GARCH (Generalized AutoregressivernConditional Heterosedasticity) model i.e. Threshold GARCH is used. The study findsrnstrong evidence for the existence of Freidman-Ball hypothesis. TGARCH model is usedrnto allow for asymmetric effect of positive and negative inflationary shocks and the resultrnindicates strong asymmetric effect of inflationary shocks on inflation uncertainty.rnCo integrated VAR model and granger causality test are also used to see the relationshiprnbetween inflation, inflation uncertainty and growth. From the cointegrated VAR modelrnthe growth rate of GOP affects inflation positively in the long run and negatively in thernshort run. The granger causality result indicates that inflation granger causes inflationrnuncertainty positively and inflation uncertainty granger causes output growth negatively.rnTo prevent the negative consequences of inflation including uncertainty problem NationalrnBank of Ethiopia (NBE) should restore public confidence via credible policy instruments.rnFurthennore detennining the threshold level of inflation-gro:vth relationship is importantrnâ€¢rnto know the type of relationship that exists between growtl'i and ~n.