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Uncertainty Shocks, Adjustment Costs and Firm Beliefs: Evidence From a Representative Survey

Andreas Dibiasi (), Heiner Mikosch () and Samad Sarferaz ()
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Andreas Dibiasi: ETH Zurich, Switzerland
Samad Sarferaz: ETH Zurich, Switzerland

No 21-496, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: This paper studies the dynamic effects of an uncertainty shock on firm expectations. We conduct a survey that confronts managers from a representative firm sample with a model-consistent uncertainty shock scenario. An exogenous increase in uncertainty significantly reduces managers’ expected investment, employment and production in the short and mid run. We collect novel direct firm-level mea- sures for different types of capital and labor adjustment costs. Adjustment costs vary strongly across sectors and types. They help explain firms’ reactions to the shock, which provides evidence for the relevance of real-options channels. We compare the findings to DSGE and VAR results.

Keywords: Uncertainty; Shock; Firms; Survey; Vignette; Expectations; Investment; Employment; Production (search for similar items in EconPapers)
JEL-codes: C83 D83 D84 E22 E23 E24 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2021-10
New Economics Papers: this item is included in nep-mac and nep-ore
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