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The impact of economic policy uncertainty and monetary policy on R&D investment: An option pricing approach

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  • de la Horra, Luis P.
  • Perote, Javier
  • de la Fuente, Gabriel

Abstract

This paper adopts a real options approach to investigate the effects of economic policy uncertainty (EPU) and monetary policy on R&D investment. Using a panel of U.S. firms over the period 2000–2019, we show that higher (lower) EPU and contractionary (expansionary) monetary policy exert a positive (negative) and significant influence on R&D investment. Our findings shed light on the counter-intuitive behavior of R&D investments, which may help policymakers to anticipate such collateral effects.

Suggested Citation

  • de la Horra, Luis P. & Perote, Javier & de la Fuente, Gabriel, 2022. "The impact of economic policy uncertainty and monetary policy on R&D investment: An option pricing approach," Economics Letters, Elsevier, vol. 214(C).
    • Handle: RePEc:eee:ecolet:v:214:y:2022:i:c:s0165176522000787
    DOI: 10.1016/j.econlet.2022.110413
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    Cited by:

    1. Neeru Chaudhry & Chris Veld, 2023. "Political uncertainty and investments by private and state‐owned enterprises," International Review of Finance, International Review of Finance Ltd., vol. 23(3), pages 584-614, September.

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    More about this item

    Keywords

    R&D; Monetary policy; Economic policy uncertainty; Real options; Panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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