Heterogeneity in the dynamic effects of uncertainty on investment

Sung Je Byun, Soojin Jo

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

We examine how aggregate profit uncertainty influences capital investment activities, focusing on heterogeneous responses of firms. We model aggregate profit uncertainty as the conditional standard deviation of a common factor across unforecasted fluctuations in the sales growth of different industries and exploit cross-sectional variations for its estimation. From an investment forecasting model that coherently analyzes firm- or group-specific effects of uncertainty, we find that the direction and the size of investment adjustment vary considerably across firms, with a significant but small negative average impact. Our results highlight the importance of accounting for heterogeneity in the transmission of uncertainty, allowing us to reconcile different views on the effect of uncertainty in the existing literature.

Original languageEnglish
Pages (from-to)127-155
Number of pages29
JournalCanadian Journal of Economics
Volume51
Issue number1
DOIs
Publication statusPublished - 2018 Feb 1

Bibliographical note

Publisher Copyright:
© 2018 Canadian Economics Association

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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