Gray's Anatomy: Understanding Uncertainty

Roberto Samaniego () and Juliana Sun

MPRA Paper from University Library of Munich, Germany

Abstract: We explore the key mechanisms whereby uncertainty impacts the business cycle by exploring the interaction of uncertainty with growth in industries with different technologies of production. We find that uncertainty shocks are particularly detrimental to growth in industries with rapid capital depreciation or high investment adjustment costs. The findings are consistent with real options theory: uncertainty leads firms to delay investment in new projects, but high depreciation and fixed costs of investment make delay more costly. On the other hand, we do not find evidence of a significant role of financial markets in the generation nor propagation of uncertainty shocks.

Keywords: Uncertainty; technology; industry growth; depreciation; capital adjustment costs; investment lumpiness; real options. (search for similar items in EconPapers)
JEL-codes: D81 E22 E32 (search for similar items in EconPapers)
Date: 2016-07-13
New Economics Papers: this item is included in nep-cse and nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:72787

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