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Uncertainty and the Dynamics of R&D

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Author Info
Nicholas Bloom

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Abstract

Uncertainty varies strongly over time, rising by 50% to 100% in recessions and by up to 200% after major economic and political shocks. This paper shows that higher uncertainty reduces the responsiveness of R&D to changes in business conditions - a "caution-effect" - making it more persistent over time. Thus, uncertainty will play a critical role in shaping the dynamics of R&D through the business cycle, and its response to technology policy. I also show that if firms are increasing their level of R&D then the effect of uncertainty will be negative, while if firms are reducing R&D then the effect of uncertainty will be positive.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12841.

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Date of creation: Jan 2007
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Handle: RePEc:nbr:nberwo:12841

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Find related papers by JEL classification:
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
O3 - Economic Development, Technological Change, and Growth - - Technological Change

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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.:
  1. Diego Comin & Mark Gertler, 2006. "Medium-Term Business Cycles," American Economic Review, American Economic Association, vol. 96(3), pages 523-551, June.
    Other versions:
  2. Gadi Barlevy, 2007. "On the Cyclicality of Research and Development," American Economic Review, American Economic Association, vol. 97(4), pages 1131-1164, September.
  3. Bertola, Guiseppe & Caballero, Ricardo J, 1994. "Irreversibility and Aggregate Investment," Review of Economic Studies, Blackwell Publishing, vol. 61(2), pages 223-46, April. [Downloadable!] (restricted)
    Other versions:
  4. Schwert, G William, 1989. " Why Does Stock Market Volatility Change over Time?," Journal of Finance, American Finance Association, vol. 44(5), pages 1115-53, December. [Downloadable!] (restricted)
    Other versions:
  5. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Andrew B. Abel & Janice C. Eberly, 1995. "Optimal Investment with Costly Reversibility," NBER Working Papers 5091, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Bernanke, Ben S, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 85-106, February. [Downloadable!] (restricted)
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  8. Russell W. Cooper & John C. Haltiwanger, 2006. "On the Nature of Capital Adjustment Costs," Review of Economic Studies, Blackwell Publishing, vol. 73(3), pages 611-633, 07. [Downloadable!] (restricted)
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  9. Eduardo S. Schwartz, 2003. "Patents and R&D as Real Options," NBER Working Papers 10114, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Nick Bloom, 2006. "The Impact of Uncertainty Shocks: Firm Level Estimation and a 9/11 Simulation," CEP Discussion Papers dp0718, Centre for Economic Performance, LSE. [Downloadable!]
  11. Topel, Robert H & Rosen, Sherwin, 1988. "Housing Investment in the United States," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 718-40, August. [Downloadable!] (restricted)
  12. 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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Cited by:
(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. Franck Paolucci, 2007. "Des contraintes aux contributions des investissements en R&D aux Etats-Unis," Documents de Travail de l'OFCE 2007-16, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  2. Philippe Aghion & Philippe Askenazy & Nicolas Berman & Gilbert Cette & Laurent Eymard, 2008. "Credit constraints and the cyclicality of R&D investment: Evidence from France," PSE Working Papers 2008-26, PSE (Ecole normale supérieure). [Downloadable!]
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