Effect of Different Levels of Inflation Uncertainty on Private Investment in Agriculture Sector of Iran

In conventional investment theories, it is usually assumed that the decisions are made at a stable and certain situation. However, uncertain parameters such as variable inflation rate create a difficult situation for private investment. In recent studies, the effect of variable and uncertain situations on investment in developing countries such as Iran has been evaluated. In the current study, using co-integration method and GARCH econometric model, the influence of inflation uncertainty on private investment in agriculture sector during the period of 1963 to 2011 has been investigated. The results indicated that at high levels of inflation uncertainty, this parameter had a significant negative impact on private investment in agriculture sector during the 1980s and 2000s. However, low levels of inflation uncertainty had a non-significant positive impact during the war period and a significant negative impact after the war period on private investment in this sector. Moreover, the results of this study indicate that liquidity and GDP gap has a positive and significant effect on private investment whereas the credit has a non-significant negative on private investment in agriculture sector of Iran.

JEL Classification: G23, E22, E31, C58

Keywords:
Inflation Uncertainty, Private Investment, GARCH Model