The effect of uncertainty on UK investment authorisation: Homogenous vs. heterogeneous estimators

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The effect of uncertainty on UK investment authorisation: Homogenous vs. heterogeneous estimators

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Ciaran Driver
Katsushi Imai
Paul Temple
Giovanni Urga ()

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Abstract

This paper compares pooled and non-pooled models of UK capital investment using the Confederation of British Industry’s (CBI) Industrial Trends Survey, focusing on the impact of uncertainty. The uncertainty measure is based on the cross sectional dispersion of optimism about the future business conditions in the industry in which the firm operates. The panel data estimation shows that uncertainty has quantitatively important negative effects on investment. However, if we look at the estimation results at the industry level, we find a great diversity in both estimated elasticities and t-statistics, providing valuable information not available from the pooled model. Finally, we compare the forecast performances of the above models; this analysis confirms that pooled estimators are generally better than non-pooled estimators in terms of out-of-sample forecast performance, but the difference between the two is not very large. Copyright Springer-Verlag 2004

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Publisher Info
Article provided by Springer in its journal Empirical Economics.

Volume (Year): 29 (2004)
Issue (Month): 1 (January)
Pages: 115-128
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Handle: RePEc:spr:empeco:v:29:y:2004:i:1:p:115-128

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Cited by:
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Ciaran Driver & Paul Temple & Giovanni Urga, 2005. "Explaining the Diversity of Industry Investment Responses to Uncertainty Using Long Run Panel Survey Data," Department of Economics Discussion Papers 0405, Department of Economics, University of Surrey. [Downloadable!]
Badi H. Baltagi, 2007. "Forecasting with Panel Data," Center for Policy Research Working Papers 91, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
Other versions:
- Baltagi, Badi H., 2006. "Forecasting with panel data," Discussion Paper Series 1: Economic Studies 2006,25, Deutsche Bundesbank, Research Centre. [Downloadable!]
- Badi H. Baltagi, 2008. "Forecasting with panel data," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 27(2), pages 153-173. [Downloadable!]

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