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Empirical Evidence on the Dynamics of Investment Under Uncertainty in the US

Author

Listed:
  • Qazi Haque
  • Leandro M. Magnusson
  • Kazuki Tomioka

Abstract

We study the effects of financial uncertainty on investment dynamics in the U.S. using a vector autoregression with drifting parameters and stochastic volatilities. We find time-varying negative effects of financial uncertainty shocks on investment. These effects have declined in the post-WWII period but became more pronounced in the presence of the zero lower bound episode. We also find that the response of inflation to uncertainty shocks varies over time, and these shocks do not always act like aggregate demand shocks. Remarkably, the relevance of financial uncertainty shocks is found to be negligible during the Great Recession.

Suggested Citation

  • Qazi Haque & Leandro M. Magnusson & Kazuki Tomioka, 2019. "Empirical Evidence on the Dynamics of Investment Under Uncertainty in the US," CAMA Working Papers 2019-87, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2019-87
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-05/87_2019_Haque_Magnusson_Tomioka.pdf
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    Cited by:

    1. is not listed on IDEAS
    2. Stylianos Asimakopoulos & Marco Lorusso & Francesco Ravazzolo, 2023. "A Bayesian DSGE Approach to Modelling Cryptocurrency"," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 1012-1035, December.
    3. Mendieta-Muñoz Ivan, 2024. "Time-varying Investment Dynamics in the USA," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 18(1), pages 1-18.

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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