Empirical Evidence on the Dynamics of Investment Under Uncertainty in the U.S.*

Qazi Haque, Leandro M. Magnusson, Kazuki Tomioka

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)
125 Downloads (Pure)

Abstract

We study the time-varying effects of financial uncertainty shocks in the United States using a vector autoregression with drifting parameters and stochastic volatilities. We find negative effects of financial uncertainty shocks on real activity with both consumption and investment growth declining significantly and comoving along the entire sample. These effects remained fairly stable in the post-WWII period but the negative response of investment growth became more pronounced during the Zero Lower Bound episode. Our findings lend empirical support to theoretical frameworks that can successfully capture this macroeconomic comovement following an uncertainty shock. Remarkably, we find a limited role for financial uncertainty shocks during the Great Recession.

Original languageEnglish
Pages (from-to)1193-1217
Number of pages25
JournalOxford Bulletin of Economics and Statistics
Volume83
Issue number5
Early online date5 Feb 2021
DOIs
Publication statusPublished - Oct 2021

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