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Empirical evidence on the dynamics of investment under uncertainty in the U.S

Author

Listed:
  • Qazi Haque

    (The University of Western Australia, Centre for Applied Macroeconomic Analysis)

  • Leandro M. Magnusson

    (Business School, The University of Western Australia)

  • Kazuki Tomioka

    (University of Rochester)

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 U.S," Economics Discussion / Working Papers 19-18, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:19-18
    Note: MD5 = da7bd2c80ed79e4afda7640e83759de8
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    References listed on IDEAS

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    Cited by:

    1. Firmin Doko Tchatoka & Qazi Haque & Madison Terrell, 2022. "Monetary policy shocks and exchange rate dynamics in small open economies," CAMA Working Papers 2022-15, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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    More about this item

    Keywords

    Uncertainty shocks; investment dynamics; TVP-VARs with stochastic volatility; Bayesian VARs; Great Recession;
    All these keywords.

    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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