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Discovering the Link between Uncertainty and Investment - Microeconometric Evidence from Germany

  • Hjalmar Böhm

    ()

  • Michael Funke

    ()

  • Nikolaus A. Siegfried

    ()

We analyse empirically the effect of uncertainty on the investment decisions of a sample of quoted German firms. The uncertainty measures are constructed by employing two procedures: the conventional formula of standard deviation, and the GARCH methodology. We find that uncertainty exerts a significantly negative effect on investment, i.e. uncertainty slows down capital accumulation. We also find that this negative relationship is closely related to the degree of market power of the firm.

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Paper provided by Hamburg University, Department of Economics in its series Quantitative Macroeconomics Working Papers with number 19906.

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Date of creation: Aug 1999
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Handle: RePEc:ham:qmwops:19906
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  22. Ferderer, J Peter, 1993. "The Impact of Uncertainty on Aggregate Investment Spending: An Empirical Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 30-48, February.
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  25. Abel, Andrew B. & Eberly, Janice C., 1997. "An exact solution for the investment and value of a firm facing uncertainty, adjustment costs, and irreversibility," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 831-852, May.
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  28. Serven, Luis, 1998. "Macroeconomic uncertainty and private investment in developing countries - an empirical investigation," Policy Research Working Paper Series 2035, The World Bank.
  29. Jorion, Philippe, 1995. " Predicting Volatility in the Foreign Exchange Market," Journal of Finance, American Finance Association, vol. 50(2), pages 507-28, June.
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