Investments and uncertainty revisited: the case of the US economy. Issue 45 (26th September 2017)

• Record Type: Journal Article
• Authors: Degiannakis, Stavros; Filis, George; Palaiodimos, George
• Is Part Of: Applied economics. Volume 49:Issue 45(2017)
• Page Start: 4521
• Page End: 4529
• Publication Date: 2017-09-26
• Subjects: Uncertainty -- public investments -- private investments -- gross fixed capital formation -- dynamic correlation -- forecast; C32 -- C51 -- C53 -- E22 -- H50; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2017.1284995
• Languages: English
• ISSNs: 0003-6846

Abstract

ABSTRACT: This article 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 them, we cannot fully unravel the real link between uncertainty and investments. Finally, we examine whether the use of the two correlation regimes provides better forecasts for 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.