Investment and Uncertainty in the G7

Joseph Paul Byrne, E. Philip Davis

Research output: Contribution to journalArticle

30 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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