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The I-r Hump: Irreversible Investment under Uncertainty

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  • Rose, Colin

Abstract

It is well known that if investment is irreversible and uncertain, there exists a benefit to waiting. When such benefits are taken into account, the relationship between interest rates and investment may be quite complex. In particular, when net revenues follow a Gaussian random walk, model investment tends to zero at both high and low interest rates. That is, investment is a hump-shaped function of r. Copyright 2000 by Oxford University Press.

Suggested Citation

  • Rose, Colin, 2000. "The I-r Hump: Irreversible Investment under Uncertainty," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 626-636, July.
    • Handle: RePEc:oup:oxecpp:v:52:y:2000:i:3:p:626-36
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    Cited by:

    1. Chen, Yu-Fu & Funke, Michael, 2002. "Exchange Rate Uncertainty and Labour Market Adjustment under Fixed and Flexible Exchange Rates," Discussion Paper Series 26287, Hamburg Institute of International Economics.
    2. Benny Geys & Jan Vermeir, 2008. "Taxation and presidential approval: separate effects from tax burden and tax structure turbulence?," Public Choice, Springer, vol. 135(3), pages 301-317, June.
    3. Belke, Ansgar & Kotz, Hans-Helmut & Paul, Stephan & Schmidt, Christoph M. (ed.), 2009. "Wirtschaftspolitik im Zeichen europäischer Integration: Festschrift für Wim Kösters anlässlich seines 65. Geburtstages," RWI Schriften, RWI - Leibniz-Institut für Wirtschaftsforschung, volume 83, number 83.
    4. Andrea Beccarini, 2007. "Investment sensitivity to interest rates in an uncertain context: is a positive relationship possible?," Economic Change and Restructuring, Springer, vol. 40(3), pages 223-234, September.

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