Investments and uncertainty revisited: The case of the US economy

Stavros Degiannakis, George Filis and Georgios Palaiodimos ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the relationship between investments and uncertainty for the US economy, as the latter is approximated by consumer sentiment, purchasing managers’ prospects and economic policy uncertainty. Contrary to the existing literature, we provide evidence that this relationship is time-varying. The time variation is attributed to the observed temporal replacement effect between private and public investments. Furthermore, we show that there are two distinct correlation regimes in this relationship and unless we concentrate on the two regimes, we cannot fully unravel the real link between uncertainty and investments. Finally, we examine whether the use of two correlation regimes provides better forecasts of investments compared to the use of the uncertainty indices alone. The forecasting exercise reveals that the use of correlation regimes provides statistically superior out-of-sample forecasts.

Keywords: Uncertainty; public investments; private investments; gross fixed capital formation; dynamic correlation; forecast. (search for similar items in EconPapers)
JEL-codes: C32 C51 C53 E22 H50 (search for similar items in EconPapers)
Date: 2015-07-01
New Economics Papers: this item is included in nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Investments and uncertainty revisited: the case of the US economy (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:72083

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