Investment and Uncertainty: A Theory-based Empirical Approach
AbstractThis paper provides empirical evidence on the dynamic effects of uncertainty on firm-level capital accumulation. A novelty in this paper is that the firm-level uncertainty indicator is motivated and derived from a theoretical model, the neoclassical investment model with time to build. This model also serves as the base for the empirical work, where an error-correction approach is employed. I find a negative effect of uncertainty on capital accumulation, both in the short run and the long run. This outcome cannot be explained by the model alone. Instead, the results suggest that the predominant mechanism at work stems from irreversibility constraints. Copyright 2007 Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.
Volume (Year): 69 (2007)
Issue (Month): 5 (October)
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Other versions of this item:
- Carlsson, Mikael, 2004. "Investment and Uncertainty: A Theory-Based Empirical Approach," Working Paper Series 2004:17, Uppsala University, Department of Economics.
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
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