Empirical Evidence on the Dynamics of Investment Under Uncertainty in the U.S

Qazi Haque, Leandro Magnusson and Kazuki Tomioka

Oxford Bulletin of Economics and Statistics, 2021, vol. 83, issue 5, 1193-1217

Abstract: We study the time‐varying effects of financial uncertainty shocks in the United States using a vector autoregression with drifting parameters and stochastic volatilities. We find negative effects of financial uncertainty shocks on real activity with both consumption and investment growth declining significantly and comoving along the entire sample. These effects remained fairly stable in the post‐WWII period but the negative response of investment growth became more pronounced during the Zero Lower Bound episode. Our findings lend empirical support to theoretical frameworks that can successfully capture this macroeconomic comovement following an uncertainty shock. Remarkably, we find a limited role for financial uncertainty shocks during the Great Recession.

Date: 2021
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Citations: View citations in EconPapers (2)

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https://doi.org/10.1111/obes.12420

Related works:
Working Paper: Empirical evidence on the dynamics of investment under uncertainty in the US (2019)
Working Paper: Empirical evidence on the dynamics of investment under uncertainty in the U.S (2019)
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