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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)

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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Bibliographic Info

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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Keywords: Investment; Uncertainty; Panel Data Estimation;

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References

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  1. Badi H. Baltagi & James M. Griffin & Weiwen Xiong, 2000. "To Pool Or Not To Pool: Homogeneous Versus Hetergeneous Estimations Applied to Cigarette Demand," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 117-126, February.
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  3. Bomberger, William A & Frazer, William J, Jr, 1981. "Interest Rates, Uncertainty and the Livingston Data," Journal of Finance, American Finance Association, vol. 36(3), pages 661-75, June.
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  11. Alan Carruth & Andrew Dickerson & Andrew Henley, 1997. "Econometric Modelling of UK Aggregate Investment: The Role of Profits and Uncertainty," Studies in Economics 9704, Department of Economics, University of Kent.
  12. Vivek Ghosal & Prakash Loungani, 2000. "The Differential Impact of Uncertainty on Investment in Small and Large Businesses," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 338-343, May.
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  16. Victor R. Fuchs & Alan B. Krueger & James M. Poterba, 1998. "Economists' Views about Parameters, Values, and Policies: Survey Results in Labor and Public Economics," Journal of Economic Literature, American Economic Association, vol. 36(3), pages 1387-1425, September.
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Cited by:
  1. Ciaran Driver & Paul Temple & Giovanni Urga, 2005. "Explaining the Diversity of Industry Investment Responses to Uncertainty Using Long Run Panel Survey Data," School of Economics Discussion Papers 0405, School of Economics, University of Surrey.

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