Abstract
Empirical work on uncertainty and investment generally focuses on one country or one indicator of uncertainty. 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.
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Byrne, J., Davis, E. Investment and Uncertainty in the G7. Rev. World Econ. 141, 1–32 (2005). https://doi.org/10.1007/s10290-005-0013-0
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DOI: https://doi.org/10.1007/s10290-005-0013-0