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

Qazi Haque, Leandro Magnusson and Kazuki Tomioka
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Kazuki Tomioka: University of Rochester

No 19-18, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

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.

Keywords: Uncertainty shocks; investment dynamics; TVP-VARs with stochastic volatility; Bayesian VARs; Great Recession (search for similar items in EconPapers)
JEL-codes: C11 C32 E22 E32 E44 (search for similar items in EconPapers)
Pages: 26
Date: 2019
New Economics Papers: this item is included in nep-fdg and nep-mac
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Related works:
Journal Article: Empirical Evidence on the Dynamics of Investment Under Uncertainty in the U.S (2021)
Working Paper: Empirical evidence on the dynamics of investment under uncertainty in the US (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:uwa:wpaper:19-18

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