Bloom, N.;
Bond, S.;
van Reenen, J.;
(2001)
The dynamics of investment under uncertainty.
(IFS Working Papers
W01/05).
Institute for Fiscal Studies: London, UK.
![[thumbnail of 3864.pdf]](https://discovery.ucl.ac.uk/style/images/fileicons/application_pdf.png) Preview |
PDF
3864.pdf Download (672kB) |
Abstract
We derive robust predictions on the effects of uncertainty on short-run investment dynamics in a broad class of models with (partial) irreversibility. When their environments becomes more uncertain, firms become more cautious and less responsive to demand shocks. This result contrasts with the long-run analysis, in which the effect of real options on the level of the capital stock is ambiguous. An investment model is estimated to test these theoretical predications using a panel of UK firms and a stock returns-based measure of uncertainty. As predicted we find that uncertainty reduces firms' responsiveness to demand shocks.
| Type: | Working / discussion paper |
|---|---|
| Title: | The dynamics of investment under uncertainty |
| Open access status: | An open access version is available from UCL Discovery |
| Publisher version: | http://www.ifs.org.uk/publications/browse/type/wp |
| Language: | English |
| Keywords: | JEL classification: D92, E22, D8, C23. Investment, uncertainty, real options, panel data |
| UCL classification: | UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics |
| URI: | https://discovery.ucl.ac.uk/id/eprint/3864 |
Archive Staff Only
 |
View Item |
