The impacts of Uncertainty on the Industrial Product: Empirical Evidence with the PVAR Model

Abstract

The interest rates and uncertainty are supposed to play an important role on the agents' decisions. This study has two main objectives. First, we verify the impact of industrial output to the investments and real interest rates shocks in mercusur countries using the PVAR model through the GMM system (1997-2016). The results of the estimates show, on the one hand, that industrial production responds positively and statistically significant to changes in investments and, on the other one, it responds negatively to changes in real interest rates. Granger's causality test suggests that investments and interest rates Granger-cause the industrial product. Second, we present empirical evidence of the role of uncertainties in the agents' investment decision-making process, considering only the case of Brazil (2002-2016). We find that the industrial product and investments increase with the agents' confidence on the federal government future behavior  but decrease when uncertainties raise.