Discovering the Link between Uncertainty and Investment - Microeconometric Evidence from Germany

Hjalmar Böhm (boehm@iws1-82.econ.uni-hamburg.de), Michael Funke and Nikolaus A Siegfried

Quantitative Macroeconomics Working Papers from Hamburg University, Department of Economics

Abstract: We analyse empirically the effect of uncertainty on the investment decisions of a sample of quoted German firms. The uncertainty measures are constructed by employing two procedures: the conventional formula of standard deviation, and the GARCH methodology. We find that uncertainty exerts a significantly negative effect on investment, i.e. uncertainty slows down capital accumulation. We also find that this negative relationship is closely related to the degree of market power of the firm.

Date: 1999-08
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Working Paper: Discovering the Link Between Uncertainty and Investment - Microeconometric Evidence from Germany (2000)
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