Abstract

This study explores trend dynamics and potential causal interactions among three core macroeconomic conditions/variables. Employing modified Granger causality estimation method propounded by Toda-Yamamoto, this study finds significant bidirectional and uni-directional causal interactions among variables tested even after controlling for other key macroeconomic conditions/variables. Empirical results for instance, suggest significant mutual causal interactions between inflation expectations and measured or prevailing inflation; with relatively stronger causal influence emanating from measured inflation towards inflation expectations. Similar mutual or bi-directional causal interaction between inflation expectations and investment performance volatility with stronger causal influence running from inflation expectations is also found. Our results however, found only uni-directional causal interaction between inflation and investment performance volatility with direction influence emanating from measured inflation towards investment performance volatility.

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