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Uncertainty and the Dynamics of R&D

  • Nicholas Bloom

    ()

    (Department of Economics, Stanford University)

Uncertainty varies strongly over time, rising by 50% to 100% in recessions and by up to 200% after major economic and political shocks. This paper shows that higher uncertainty reduces the responsiveness of R&D to changes in business conditions - a "caution-effect" - making it more persistent over time. Thus, uncertainty will play a critical role in shaping the dynamics of R&D through the business cycle, and its response to technology policy. I also show that if fi?rms are increasing their level of R&D then the effect of uncertainty will be negative, while if fi?rms are reducing R&D then the effect of uncertainty will be positive.

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File URL: http://www-siepr.stanford.edu/repec/sip/07-021.pdf
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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 07-021.

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Date of creation: Jan 2007
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Handle: RePEc:sip:dpaper:07-021
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  1. Nick Bloom & Stephen Bond & John Van Reenen, 2006. "Uncertainty and Investment Dynamics," CEP Discussion Papers dp0739, Centre for Economic Performance, LSE.
  2. Bloom, Nicholas & Van Reenen, John, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," CEPR Discussion Papers 5581, C.E.P.R. Discussion Papers.
  3. Diego Comin & Mark Gertler, 2003. "Medium Term Business Cycles," NBER Working Papers 10003, National Bureau of Economic Research, Inc.
  4. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
  5. Bernanke, Ben S, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 85-106, February.
  6. Andrew B. Abel & Janice C. Eberly, 1995. "Optimal Investment with Costly Reversibility," NBER Working Papers 5091, National Bureau of Economic Research, Inc.
  7. Giuseppe Bertola & Ricardo J. Caballero, 1991. "Irreversibility and Aggregate Investment," NBER Working Papers 3865, National Bureau of Economic Research, Inc.
  8. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, volume 1, number 5474, April.
  9. Schwert, G William, 1989. " Why Does Stock Market Volatility Change over Time?," Journal of Finance, American Finance Association, vol. 44(5), pages 1115-53, December.
  10. Russell W. Cooper & John C. Haltiwanger, 2000. "On the Nature of Capital Adjustment Costs," NBER Working Papers 7925, National Bureau of Economic Research, Inc.
  11. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
  12. Gadi Barlevy, 2007. "On the Cyclicality of Research and Development," American Economic Review, American Economic Association, vol. 97(4), pages 1131-1164, September.
  13. Nick Bloom, 2006. "The impact of uncertainty shocks: firm level estimation and a 9/11 simulation," LSE Research Online Documents on Economics 19867, London School of Economics and Political Science, LSE Library.
  14. Bloom, Nick & Griffith, Rachel & Van Reenen, John, 2002. "Do R&D tax credits work? Evidence from a panel of countries 1979-1997," Journal of Public Economics, Elsevier, vol. 85(1), pages 1-31, July.
  15. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, 05.
  16. Topel, Robert H & Rosen, Sherwin, 1988. "Housing Investment in the United States," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 718-40, August.
  17. Eduardo S. Schwartz, 2003. "Patents and R&D as Real Options," NBER Working Papers 10114, National Bureau of Economic Research, Inc.
  18. John Hassler, . "Variations in Risk and Fluctuations in Demand - a theoretical model," Homapage Papers _003, Stockholm University, Institute for International Economic Studies.
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