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The Effect of Uncertainty on UK Investment Authorisation: Pooled Estimators vs. Heterogeneous Estimators1

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Author Info
Ciaran Driver () (Imperial College Management School)
Katsushi Imai (Imperial College Management School)
Paul Temple (Department of Economics, University of Surrey)
Giovanni Urga () (City University Business School)

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Abstract

This paper compares pooled models of capital investment with non-pooled models using the UK's Confederation of British Industry's (CBI) Industrial Trends Survey for the U.K., particularly focusing on the effect of uncertainty on investment. The uncertainty measure is based on the cross sectional dispersion of expectations. The panel data estimation shows that uncertainty has negative effects, which are non negligible in terms of magnitude, on investment. However, if we look at the estimation results at the industry level, we find a great diversity in elasticity and t-statistics, providing valuable information not available from the pooled model. Finally, we compare forecast performances based on the above models. It is confirmed that pooled estimators are generally better than non-pooled estimators in terms of forecast performance, but the difference between the two is not very large.

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Paper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number B3-4.

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Date of creation: Mar 2002
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Handle: RePEc:cpd:pd2002:b3-4

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Related research
Keywords: Investment; Uncertainty; Panel Data Estimation;

Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  14. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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!]
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