Econometric Modeling of the Impact of Inflation on the Dynamics of Investment

Abstract

The article, based on data for 35 developed countries from 1980 to 2015, examines the impact of inflation and its volatility on real investment. The estimates of inflation volatility obtained in the framework of GARCH-model; to evaluate the impact of inflation on investment panel regression with fixed effects (entity fixed effects model and entity and time fixed effects model) is used. It is demonstrated that lower inflation rates and its volatility have positive impact on the dynamics of investment in fixed capital. Thus, inflation targeting regime is a prerequisite to long-term economic growth.