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Uncertainty-Induced Reallocations and Growth

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  • Ravi Bansal
  • Mariano Max Croce
  • Wenxi Liao
  • Samuel Rosen

Abstract

Focusing on both micro and aggregate U.S. data, we show the existence of a significant link between aggregate uncertainty and reallocation of resources away from R&D-intensive capital. This link is important because a decrease in the aggregate share of R&D-oriented capital forecasts lower medium-term growth. In a multi-sector production economy in which (i) growth is endogenously supported by risky R&D investments, and (ii) the representative agent is volatility-risk averse and has access to other safer technologies that do not support growth, uncertainty shocks have a first-order negative impact on medium-term growth and welfare.

Suggested Citation

  • Ravi Bansal & Mariano Max Croce & Wenxi Liao & Samuel Rosen, 2019. "Uncertainty-Induced Reallocations and Growth," NBER Working Papers 26248, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26248
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    Cited by:

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    2. Valeriu Nalban & Andra Smadu, 2020. "Financial disruptions and heightened uncertainty: a case for timely policy action," DNB Working Papers 687, Netherlands Central Bank, Research Department.

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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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