Macroeconomic Volatility

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Introduction

The term volatility shows that how quickly and how much investment, market structures changes. Fluctuations and volatility in GDP and other key macroeconomic variables is a serious restriction on development which makes planning more challenging and makes investment more uncertain and risky. Developing countries generally suffer from a high degree of uncertainty as compared to the developed countries because the GDP growth, exchange rate and other macroeconomic indicators are more volatile in developing countries. The consequences of this volatility or uncertainty upon economic growth, investment and trade etc. are gaining attention in economic literature. The impact of uncertainty and volatility on investment
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Investment needs stable macroeconomic environment as it is strongly affected by uncertainty and volatility or risk. Private investment is volatile because of the fact that any forecast to the future is not complete and is uncertain. It is responsible for the output fluctuation over the business cycle.

This study attempts to investigate the determinants of macroeconomic volatility and the effect on private investment by using some key macroeconomic variables which greatly affect investment.

Many economists worked out with this theory but yet no agreement has been reached the theory result. Some economists are with the view point that uncertainty enhances the private investment. But an empirical results shows that uncertainty and volatility have significantly adverse affect on private investment.

Pakistan’s economy faced a lot of ups and downs in the nearest history. Different foreign economies boosted the Pakistan’s economy but some issues led negative effects on the Pakistan’s economy i.e oil price shock, Afghan war. The decade of 1990,s was considered as a worst decade for the economy because of political instability (Marshal Law), floods, Kargal war
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Economic growth refers to an increase in a country’s production or income per capita. It is usually measured by gross national product (GNP) or gross national income (GNI), used interchangeably, an economy’s total output of goods and services. Investment is the source of manufactured goods that will be used to produce other goods. It is the major foundation of enhancement in the level of literacy, improvement in technology and increase in the capital stock (Hashmi et al 2012). A rate of investment is one of the key factors that differentiate developed countries from developing countries. In high-growth countries investment is high, where as it is low in low growth countries. The implication of low investment is that the productive capacity of the economy fails to increase.

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