The Relationship between Inflation Uncertainty and Inflation, Economic Growth and Investment in Selected Countries of the OIC: GMM and PMG Approaches

Document Type : Review Article

Abstract

In the macroeconomic literature, inflation uncertainty can affect investment and economic growth by inducing the decisions of economic actors.  The main objective of this study is investigating the relationships between inflation uncertainty, inflation, economic growth and investment in selected OIC countries over the period 1995-2013. In this study, two-step generalized moment method (GMM) is used to estimation of models. The results show that inflation uncertainty has positive and significant effect on inflation. Also inflation uncertainty affects investment and economic growth negatively. Estimation results of Pooled Mean Group (PMG) Model show that inflation uncertainty has negative effects on investment and economic growth in the long run. But its' effects have been different depending on the situation in each country in the short run. Therefore, it is argued that the correct implementation of inflation stabilization programs and the rapid growth of prices will ultimately lead to investment growth and an increase in the real activity of the economy (and it will accelerate the economic growth) in the country.

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