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Wait-and-See: Investment Options under Policy Uncertainty

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  • Nancy L. Stokey
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    Abstract

    This paper develops a model of investment decisions in which uncertainty about a one-time change in tax policy induces the firm to temporarily stop investing—to adopt a wait-and-see policy. After the uncertainty is resolved, the firm exploits the tabled projects, generating a temporary investment boom.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19630.

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    Date of creation: Nov 2013
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    Handle: RePEc:nbr:nberwo:19630

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    1. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(4), pages 707-27, November.
    2. Seierstad, Atle & Sydsaeter, Knut, 1977. "Sufficient Conditions in Optimal Control Theory," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 367-91, June.
    3. Beaudry, Paul & Portier, Franck, 2007. "When can changes in expectations cause business cycle fluctuations in neo-classical settings?," Journal of Economic Theory, Elsevier, Elsevier, vol. 135(1), pages 458-477, July.
    4. Nir Jaimovich & Sergio Rebelo, 2009. "Can News about the Future Drive the Business Cycle?," American Economic Review, American Economic Association, American Economic Association, vol. 99(4), pages 1097-1118, September.
    5. King, R.G. & Baxter, M., 1990. "Fiscal Policy In General Equilibrium," RCER Working Papers 244, University of Rochester - Center for Economic Research (RCER).
    6. Boyan Jovanovic, 2007. "Investment Options and the Business Cycle," NBER Working Papers 13307, National Bureau of Economic Research, Inc.
    7. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen Terry, 2013. "Really Uncertain Business Cycles," CEP Discussion Papers dp1195, Centre for Economic Performance, LSE.
    8. Beaudry, Paul & Portier, Franck, 2003. "Stock Prices, News and Economic Fluctuations," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3844, C.E.P.R. Discussion Papers.
    9. Beaudry, Paul & Portier, Franck, 2001. "An Exploration into Pigou's Theory of Cycles," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2996, C.E.P.R. Discussion Papers.
    10. Hopenhayn, H. & Maniagurria, M.E., 1996. "Policy Variability and Economic Growth," RCER Working Papers 422, University of Rochester - Center for Economic Research (RCER).
    11. Benjamin Born & Johannes Pfeifer, 2011. "Policy Risk and the Business Cycle," Bonn Econ Discussion Papers, University of Bonn, Germany bgse06_2011, University of Bonn, Germany.
    12. Bachmann, Rüdiger & Bayer, Christian, 2013. "‘Wait-and-See’ business cycles?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 60(6), pages 704-719.
    13. Ben S. Bernanke, 1980. "Irreversibility, Uncertainty, and Cyclical Investment," NBER Working Papers 0502, National Bureau of Economic Research, Inc.
    14. Schmitt-Grohé, Stephanie & Uribe, Martín, 2012. "What's News in Business Cycles," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8984, C.E.P.R. Discussion Papers.
    15. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, Econometric Society, vol. 77(3), pages 623-685, 05.
    16. Ellen R. McGrattan, 1991. "The macroeconomic effects of distortionary taxation," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 37, Federal Reserve Bank of Minneapolis.
    17. Barsky, Robert B. & Sims, Eric R., 2011. "News shocks and business cycles," Journal of Monetary Economics, Elsevier, Elsevier, vol. 58(3), pages 273-289.
    18. Stephanie Schmitt‐Grohé & Martín Uribe, 2012. "What's News in Business Cycles," Econometrica, Econometric Society, Econometric Society, vol. 80(6), pages 2733-2764, November.
    19. Cukierman, Alex, 1980. "The Effects of Uncertainty on Investment under Risk Neutrality with Endogenous Information," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(3), pages 462-75, June.
    20. Brandon Julio & Youngsuk Yook, 2012. "Political Uncertainty and Corporate Investment Cycles," Journal of Finance, American Finance Association, American Finance Association, vol. 67(1), pages 45-84, 02.
    21. Born, Benjamin & Peter, Alexandra & Pfeifer, Johannes, 2013. "Fiscal news and macroeconomic volatility," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(12), pages 2582-2601.
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