Granger Causality and the Response Function: Macroeconomic Indicators as Determinants of Future Investment Activity



Year of publication 2021
Type Article in Proceedings
Conference Proceedings of the 14th International Scientific Conference: European Forum of Entrepreneurship 2021
MU Faculty or unit

Faculty of Economics and Administration

Keywords Investment activity; granger causality; macroeconomic indicators; investment funds
Description Investment activity has long stood in a position of a crucial economic topic, albeit a difficult one to grasp on account of the manifold factors that determine it. With regard to current dynamics of economic conditions, it is necessary to update findings as frequently as possible, taking into account new influences and using modern tools of statistical analysis. Investor behaviour affects macroeconomics and simultaneously macroeconomic phenomena influence investment, which gains even more significance as in the first half of 2018 investment in investment funds exceeded state budget expenditures in the Czech Republic. Previous literature examining this topic shows that the key question is comprised of what determines which variable and how. This paper concentrates on finding causal relationships between investment activity and macroeconomic indicators. Using Granger causality, nine mutual causalities (macroeconomic indicators helping predict the development of investment funds and at the same time investment funds helping predict the development of macroeconomic indicators) and 18 one-directional causalities were identified. Response functions presented in this paper use the identified causal relationships to simulate the influence of shocks in macroeconomic indicators on fund investment. The most significant effects observed were caused by inflationary shocks, which can cause the funds to deviate considerably from the long-term equilibrium and also cause cyclical effects, destabilizing the development of funds also in the long term.
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