Local policy uncertainty and the firm's investment reaction to monetary policy

Samer Adra, Yang Gao and Jiayi Yuan

Economics Letters, 2024, vol. 234, issue C

Abstract: Rising local economic policy uncertainty increases the firm's capital investment sensitivity to monetary shocks. This effect is driven by the tendency of uncertainty-driven precautionary behavior to increase the firm's propensity to reduce investment in response to contractionary monetary shocks. This effect is more pronounced for geographically bound firms that are financially constrained. Our results show how the investment effects of local economic policy uncertainty are entangled with the asymmetries that govern the economic impact of monetary policy.

Keywords: Monetary policy; Capital investments; Local economic policy uncertainty (search for similar items in EconPapers)
JEL-codes: E52 G30 G31 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:234:y:2024:i:c:s0165176523004998

DOI: 10.1016/j.econlet.2023.111473

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