Does inflation uncertainty hurt domestic investment? Empirical evidence from Ghana

Figures & data

Figure 1. Trends in inflation uncertainty in Ghana.

Table 1. CGARCH results

Dependent Variable: INFLATION
Variable	Coefficient	Std. Error	z-Statistic
Mean Equation
INFLATION (−1)	0.107	0.003	32.029***
Variance Equation
${\alpha }_0$	0.544	0.095	5.708***
$\rho$	0.999	0.0004	2687.979***
$\phi$	0.510	0.076	6.680***
$\theta$	0.043	0.024	1.756*
$\delta$	0.951	0.152	6.258***

*** and * represents significance at 1% and 10% respectively

Table 2. Summary statistics

Variable	Obs., N	Mean	Median	Std. Dev.	Min	Max
Gross fixed capital formation	49	22.92	23.20	11.02	4.80	46.80
Total inflation volatility	49	633.99	213.92	1341.42	0.03	7520.43
Domestic interest rate	49	19.55	17.80	10.11	5.25	42.77
External interest rate	49	4.77	5.00	3.17	0.50	13.42
Government expenditure	49	10.50	10.32	2.03	5.86	15.31
GDP per capita	49	1082.38	941.59	335.58	693.95	1880.26
Trade openness	49	57.91	62.02	28.29	6.32	116.05

Table 3. Unit roots and cointegration results

Panel A. Unit root results
Variable	Level	1^st Difference	Conclusion
lnINVEST	−1.391	−8.933***	I(1)
lnINFLUNCERT	0.5032	−5.734***	I(1)
lnDINTR	−2.139	−7.019***	I(1)
lnGOVEXP	−3.299**	−7.026 ***	I(0)
lnEXINTR	−1.186	−4.59 ***	I(1)
lnGDPPC	0.454	−4.577***	I(1)
lnTRADE	−1.623	−5.252***	I(1)
Panel B. ARDL bounds test for cointegration
	Null hypothesis: No cointegration
Test statistic	Value	Significance level	Lower critical bound I(0)	Upper critical bound I(1)
F-statistic	6.76	10%	2.53	3.59
K	6	5%	2.87	4
		1%	3.6	4.90

Notes: The figures in panel A are the t-statistics obtained from Augmented-Dickey Fuller unit root test.

*** and ** denotes 1% and 5% level of significance, respectively

Table 4. Long-run results for inflation uncertainty and investment

	Dependent variable: lnINVESTt
	Total uncertainty	Permanent uncertainty	Transitory uncertainty
Variable	Model 1	Model 2	Model 3
lnINFLUNCERTt	-0.139***
	(0.048)
lnPERM_INFLUNCERTt		-0.162**
		(0.061)
TRANS_INFLUNCERTt			0.00013
			(0.00012)
lnDINTRt	-0.316***	-0.168*	-0.246***
	(0.050)	(0.095)	(0.099)
lnGOVEXPt	0.918***	0.624***	0.769
	(0.237)	(0.221)	(0.274)
lnEXTINTRt	-0.205**	0.029	-0.029
	(0.095)	(0.046)	(0.054)
lnGDPPCt	-2.978***	-1.613***	-1.252
	(0.388)	(0.347)	(0.526)
lnTRADEOPENt	0.517***	0.607***	0.763***
	(0.062)	(0.068)	(0.113)
Constant	20.149***	11.097***	7.012**
	(3.231)	(2.533)	(3.419)

Notes: standard errors are reported in parenthesis. ***, **, and * denote statistical significance at 1%, 5% and 10% levels respectively. PERM_INFLUNCERT and TRANS_INFLUNCERT stand for permanent and transitory inflation volatility/uncertainty respectively. All variables are in natural logs, except TRANS_INFLUNCERT.

Table 5. Short-run results for inflation uncertainty and investment

	Dependent variable: lnINVESTt
	Total uncertainty	Permanent uncertainty	Transitory uncertainty
Variable	Model 1	Model 2	Model 3
∆lnINFLUNCERTt	-0.008
	(0.012)
∆lnINFLUNCERTt-1	0.007
	(0.020)
∆lnINFLUNCERTt-2	-0.008
	(0.012)
∆lnINFLUNCERTt-3	0.079***
	(0.020)
∆lnPERM_INFLUNCERTt		-0.128***
		(0.045)
∆TRANS_INFLUNCERTt			0.001
			(0.002)
∆TRANS_INFLUNERTt-1			-0.0079**
			(0.0036)
∆lnDINTRt	0.166**	0.098	0.061
	(0.077)	(0.101)	(0.092)
∆lnGOVEXPt	0.259*	0.209	0.114
	(0.138)	(0.133)	(0.154)
∆lnEXINTRt	0.0003	0.023	-0.019
	(0.049)	(0.036)	(0.036)
∆lnEXINTRt-1	0.148*
	(0.082)
∆lnEXINTRt-2	-0.189***
	(0.052)
∆lnEXINTRt-3	0.159***
	(0.039)
∆lnGDPPCt	-2.266***	-1.270***	-0.831**
	(0.314)	(0.318)	(0.388)
∆lnTRADEOPENt	0.394***	0.478***	0.507***
	(0.051)	(0.078)	(0.111)
ECTt-1	-0.761***	-0.787***	-0.664***
	(0.096)	(0.090)	(0.129)

Notes: standard errors are reported in parenthesis. ***, **, and * denote statistical significance at 1%, 5% and 10% levels respectively. PERM_INFLUNCERT and TRANS_INFLUNCERT stand for permanent and transitory inflation volatility/uncertainty respectively. All variables are in natural logs, except TRANS_INFLUNCERT

Figure 2. CUSUM and CUSUMSQ tests for stability.

Table 6. Model diagnostic tests

PANEL A: Breusch-Godfrey Serial Correlation LM Test:
F-statistic	2.073852	Prob. F(2,24)		0.1476
Obs×R-squared	2.630973	Prob. Chi-Square(2)		0.363
PANEL B: Heteroskedasticity Test: Breusch-Pagan-Godfrey
F-statistic	0.440410	Prob. F(18,26)		0.9621
Obs×R-squared	10.51458	Prob. Chi-Square(18)		0.9138
Scaled explained SS	2.698271	Prob. Chi-Square(18)		1.0000
PANEL C: Ramsey RESET Test
Omitted Variables: Squares of fitted values
	Value	df	Probability
t-statistic	0.548512	25	0.5882
F-statistic	0.300865	(1, 25)	0.5882
PANEL D: Normality Test:
	Value		Probability
Jargue-Bera statistic	0.738268		0.6913