The Effect of Uncertainty in Inflation Expectations on Private Investment

Yaron Zelekha

The IUP Journal of Monetary Economics, 2010, vol. VIII, issue 4, 14-22

Abstract: Though much research has been done worldwide, the effect of uncertainty concealed in inflation expectations on private investment is disputed theoretically in the absence of enough empirical evidence to reach a conclusion. Furthermore, at the same time, traditional investment equations do not reflect the structural correlation between investment and product, because they ignore the rational expectations theory. This paper presents a theoretical foundation and an empirical estimation of private investment in Israel, using Israel’s unique data regarding inflation expectations. The results support the hypothesis that uncertainty negatively affects private investment in Israel. Furthermore, it appears that uncertainty is the most important factor, next to product, affecting private investment.

Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjmo:v:08:y:2010:i:3:p:14-22

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