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The Uncertainty-Investment Relationship

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  • Hjalmar Böhm
  • Michael Funke

Abstract

Recent theoretical developments have highlighted the importance of irreversibility and uncertainty for investment demand. This paper presents a review of this literature with some new aspects. A structural q-type investment model is derived, which contains the information on the uncertainty effects of random variables that affect future profitability of firms. A general conclusion is that the effect of uncertainty upon investment and uncertainty is ambiguous. A necessary condition for any irreversibility-driven negative relationship between investment and uncertainty is the existence of imperfect competition.

Suggested Citation

  • Hjalmar Böhm & Michael Funke, 1999. "The Uncertainty-Investment Relationship," Quantitative Macroeconomics Working Papers 19903, Hamburg University, Department of Economics.
    • Handle: RePEc:ham:qmwops:19903
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    File URL: http://www.rrz.uni-hamburg.de/wst/qmwps/qm399.ps
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    Cited by:

    1. K. Raabe & I. Arnold & C.J.M. Kool, 2006. "Firm Size and Monetary Policy Transmission: A Theoretical Model on the Role of Capital Investment Expenditures," Working Papers 06-14, Utrecht School of Economics.
    2. Benjamin Ayodele FOLORUNSO & Anthony Enisan AKINLO*, 2010. "Macroeconomic Uncertainty and Private Investment in Nigeria," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 20, pages 47-65.

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