Investment and Uncertainty in the G7

Joseph Paul Byrne, E. Philip Davis

Research output: Contribution to journalArticlepeer-review

34 Citations (Scopus)

Abstract

Empirical work on uncertainty and investment generally focuses on one country or one indicator of uncertainly. We extend the literature by assessing the impact of a comprehensive range of potential sources of uncertainty on aggregate business investment across the G7 using Pooled Mean Group Estimation (PMGE) and GARCH methods to model uncertainty. A significant negative long-run effect from exchange rate volatility is found for the G7 and in poolable subgroups including all four larger EU countries. Volatility of long-term interest rates has additionally influenced investment in recent years. For most estimates, a one standard deviation rise in conditional volatility leads to a 2—4 per cent fall in investment although some samples give greater declines. The results suggest inter alia that EMU is beneficial to aggregate investment.
Original languageEnglish
Pages (from-to)1-32
Number of pages32
JournalReview of World Economics
Volume141
Issue number1
DOIs
Publication statusPublished - Apr 2005

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