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Variations In The Effect Of Uncertainty On Different Types Of Investment
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Book Synopsis Variations in the Effect of Uncertainty on Different Types of Investment by : Rajeev K. Goel
Download or read book Variations in the Effect of Uncertainty on Different Types of Investment written by Rajeev K. Goel and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Several recent studies, including those by Pindyck (1991), Pindyck and Solimano (1993), Dixit and Pindyck (1994), Episcopos (1995), and Abel et al. (1996), suggest an important linkage between the effect of uncertainty on investment and the irreversibility of the latter. This paper broadly follows the foregoing tradition, but makes the point that it should be possible to distinguish between investments with different degrees of irreversibility and to relate the effect of uncertainty with the degree of investment irreversibility. A simple empirical illustration is provided by using pooled annual data for 12 OECD countries and estimating fixed-effects models for different types of investments. Although caution is appropriate in interpreting the estimates, the evidence suggests that the adverse effect of uncertainty is more severe on investments that have a greater degree of irreversibility.
Book Synopsis Investment under Uncertainty by : Robert K. Dixit
Download or read book Investment under Uncertainty written by Robert K. Dixit and published by Princeton University Press. This book was released on 2012-07-14 with total page 484 pages. Available in PDF, EPUB and Kindle. Book excerpt: How should firms decide whether and when to invest in new capital equipment, additions to their workforce, or the development of new products? Why have traditional economic models of investment failed to explain the behavior of investment spending in the United States and other countries? In this book, Avinash Dixit and Robert Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are made. In so doing, they answer important questions about investment decisions and the behavior of investment spending. This new approach to investment recognizes the option value of waiting for better (but never complete) information. It exploits an analogy with the theory of options in financial markets, which permits a much richer dynamic framework than was possible with the traditional theory of investment. The authors present the new theory in a clear and systematic way, and consolidate, synthesize, and extend the various strands of research that have come out of the theory. Their book shows the importance of the theory for understanding investment behavior of firms; develops the implications of this theory for industry dynamics and for government policy concerning investment; and shows how the theory can be applied to specific industries and to a wide variety of business problems.
Book Synopsis Uncertainty, Financial Frictions, and Investment Dynamics by : Simon Gilchrist
Download or read book Uncertainty, Financial Frictions, and Investment Dynamics written by Simon Gilchrist and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Micro- and macro-level evidence indicates that fluctuations in idiosyncratic uncertainty have a large effect on investment; the impact of uncertainty on investment occurs primarily through changes in credit spreads; and innovations in credit spreads have a strong effect on investment, irrespective of the level of uncertainty. These findings raise a question regarding the economic significance of the traditional "wait-and-see" effect of uncertainty shocks and point to financial distortions as the main mechanism through which fluctuations in uncertainty affect macroeconomic outcomes. The relative importance of these two mechanisms is analyzed within a quantitative general equilibrium model, featuring heterogeneous firms that face time-varying idiosyncratic uncertainty, irreversibility, nonconvex capital adjustment costs, and financial frictions. The model successfully replicates the stylized facts concerning the macroeconomic implications of uncertainty and financial shocks. By influencing the effective supply of credit, both types of shocks exert a powerful effect on investment and generate countercyclical credit spreads and procyclical leverage, dynamics consistent with the data and counter to those implied by the technology-driven real business cycle models.
Book Synopsis A New Architecture for the U.S. National Accounts by : Dale W. Jorgenson
Download or read book A New Architecture for the U.S. National Accounts written by Dale W. Jorgenson and published by University of Chicago Press. This book was released on 2007-11-01 with total page 649 pages. Available in PDF, EPUB and Kindle. Book excerpt: A New Architecture for the U.S. National Accounts brings together a distinguished group of contributors to initiate the development of a comprehensive and fully integrated set of United States national accounts. The purpose of the new architecture is not only to integrate the existing systems of accounts, but also to identify gaps and inconsistencies and expand and incorporate systems of nonmarket accounts with the core system. Since the United States economy accounts for almost thirty percent of the world economy, it is not surprising that accounting for this huge and diverse set of economic activities requires a decentralized statistical system. This volume outlines the major assignments among institutions that include the Bureau of Economic Analysis, the Bureau of Labor Statistics, the Department of Labor, the Census Bureau, and the Governors of the Federal Reserve System. An important part of the motivation for the new architecture is to integrate the different components and make them consistent. This volume is the first step toward achieving that goal.
Book Synopsis Climate Policy Uncertainty and Investment Risk by : William Blyth
Download or read book Climate Policy Uncertainty and Investment Risk written by William Blyth and published by OECD Publishing. This book was released on 2007 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt: This publication examines how uncertainty in climate change policy may affect investment behaviour in the power sector and how the costs of transition to a low-carbon economy may be addressed. For power companies, where capital stock is intensive and long-lived, those risks rank among the biggest and can create an incentive to delay investment. The analysis show that the risk premiums of climate change uncertainty can add 40 per cent of construction costs of the plant for power investors, and 10 per cent of price surcharges for the electricity end-users. It also looks at the sensitivity of different power sector investment decisions to different risks and considers the implications for policy development and design.
Book Synopsis Aggregate Uncertainty and the Supply of Credit by : Mr.Fabian Valencia
Download or read book Aggregate Uncertainty and the Supply of Credit written by Mr.Fabian Valencia and published by International Monetary Fund. This book was released on 2013-12-02 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent studies show that uncertainty shocks have quantitatively important effects on the real economy. This paper examines one particular channel at work: the supply of credit. It presents a model in which a bank, even if managed by risk-neutral shareholders and subject to limited liability, can exhibit self-insurance, and thus loan supply contracts when uncertainty increases. This prediction is tested with the universe of U.S. commercial banks over the period 1984-2010. Identification of credit supply is achieved by looking at the differential response of banks according to their level of capitalization. Consistent with the theoretical predictions, increases in uncertainty reduce the supply of credit, more so for banks with lower levels of capitalization. These results are weaker for large banks, and are robust to controlling for the lending and capital channels of monetary policy, to different measures of uncertainty, and to breaking the dataset in subsamples. Quantitatively, uncertainty shocks are almost as important as monetary policy ones with regards to the effects on the supply of credit.
Book Synopsis Investment Under Uncertainty by : Sergei Antoshin
Download or read book Investment Under Uncertainty written by Sergei Antoshin and published by . This book was released on 2007 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: A real options theory - in its classic formulation - suggests that firms invest less during times of high uncertainty, that is, uncertainty depresses investment. However, several theoretical extensions predict that the relationship between investment and uncertainty may be non-linear, or even non-monotonic, when classic model assumptions are violated. Some model parameters either reinforce or weaken the negative effect of uncertainty on investment, while others distort the investment-uncertainty relationship, making it follow an inverted U-curve. This paper is a first - to my knowledge - attempt to identify the factors affecting investment from various streams of theoretical literature on investor choice and uncertainty, and to assemble them in a single empirical framework. By employing a dynamic panel of oil company data and implied volatilities as measures of uncertainty, I am able to examine the impact of uncertainty on investment and the effect of several factors on the investment-uncertainty relationship. I obtain evidence in support of several predictions from the theory. Both economy-wide and firm-specific types of uncertainty, as well as financing constraints, are found to adversely affect investment, while industry-wide uncertainty has an ambiguous effect, depending on the level of output price. In tests for non-linearity in the investment-output price volatility relationship, I find that output price, firm size and its risk management ability weaken the investment-uncertainty relationship. On the other hand, market imperfection, financing constraints, the firm's maturity and its risk aversion re-enforce the negative effect of uncertainty. In addition, adjustment costs seem to be considerable, as firm investment reacts to changes in macroeconomic conditions with a noticeable delay.
Book Synopsis Risk, Uncertainty and Profit by : Frank H. Knight
Download or read book Risk, Uncertainty and Profit written by Frank H. Knight and published by Cosimo, Inc.. This book was released on 2006-11-01 with total page 401 pages. Available in PDF, EPUB and Kindle. Book excerpt: A timeless classic of economic theory that remains fascinating and pertinent today, this is Frank Knight's famous explanation of why perfect competition cannot eliminate profits, the important differences between "risk" and "uncertainty," and the vital role of the entrepreneur in profitmaking. Based on Knight's PhD dissertation, this 1921 work, balancing theory with fact to come to stunning insights, is a distinct pleasure to read. FRANK H. KNIGHT (1885-1972) is considered by some the greatest American scholar of economics of the 20th century. An economics professor at the University of Chicago from 1927 until 1955, he was one of the founders of the Chicago school of economics, which influenced Milton Friedman and George Stigler.
Book Synopsis Uncertainty and the Employment Dynamics of Small and Large Businesses by : Vivek Ghosal
Download or read book Uncertainty and the Employment Dynamics of Small and Large Businesses written by Vivek Ghosal and published by International Monetary Fund. This book was released on 2015-01-14 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the impact of uncertainty on employment dynamics. Alternative measures of uncertainty are constructed based on the survey of professional forecasters, and regressionbased forecasting models for GDP growth, inflation, S&P500 stock price index, and fuel prices. Our results indicate that greater uncertainty has a negative impact on growth of employment, and the effects are primarily felt by the relatively smaller businesses; the impact on large businesses are generally non-existent or weaker. Our results suggest that to truly understand the effects of uncertainty on employment dynamics, we need to focus on the relatively smaller and entrepreneurial businesses. We discuss implications for the framing of economic policy.
Book Synopsis The Impact of Uncertainty on Investment by : Mark Jan-Jochem Koetse
Download or read book The Impact of Uncertainty on Investment written by Mark Jan-Jochem Koetse and published by . This book was released on 2006 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Behavioral Simulation Methods in Tax Policy Analysis by : Martin Feldstein
Download or read book Behavioral Simulation Methods in Tax Policy Analysis written by Martin Feldstein and published by University of Chicago Press. This book was released on 2007-12-01 with total page 523 pages. Available in PDF, EPUB and Kindle. Book excerpt: These thirteen papers and accompanying commentaries are the first fruits of an ongoing research project that has concentrated on developing simulation models that incorporate the behavioral responses of individuals and businesses to alternative tax rules and rates and on expanding computational general equilibrium models that analyze the long-run effects of changes on the economy as a whole. The principal focus of the project has been on the microsimulation of individual behavior. Thus, this volume includes studies of individual responses to an over reduction in tax rates and to changes in the highest tax rates; a study of alternative tax treatments of the family; and studies of such specific aspects of household behavior as tax treatment of home ownership, charitable contributions, and individual saving behavior. Microsimulation techniques are also used to estimate the effects of alternative policies on the long-run financial status of the social security program and to examine the effects of alternative tax rules on corporate investment and of foreign-source income on overseas investment. The papers devoted to the development of general equilibrium simulation models to include an examination of the implications of international trade and capital flows, a study of the effects of capital taxation that uses a closed economy equilibrium model, and an examination of the effect of switching to an inflation-indexed tax system. In the volume's final paper, a life-cycle model in which individuals maximize lifetime utility subject to a lifetime budget constraint is used to simulate the effects of tax rules on personal savings.
Book Synopsis Market Liquidity by : Thierry Foucault
Download or read book Market Liquidity written by Thierry Foucault and published by Oxford University Press. This book was released on 2023 with total page 531 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The process by which securities are traded is very different from the idealized picture of a frictionless and self-equilibrating market offered by the typical finance textbook. This book offers a more accurate and authoritative take on this process. The book starts from the assumption that not everyone is present at all times simultaneously on the market, and that participants have quite diverse information about the security's fundamentals. As a result, the order flow is a complex mix of information and noise, and a consensus price only emerges gradually over time as the trading process evolves and the participants interpret the actions of other traders. Thus, a security's actual transaction price may deviate from its fundamental value, as it would be assessed by a fully informed set of investors. The book takes these deviations seriously, and explains why and how they emerge in the trading process and are eventually eliminated. The authors draw on a vast body of theoretical insights and empirical findings on security price formation that have come to form a well-defined field within financial economics known as "market microstructure." Focusing on liquidity and price discovery, the book analyzes the tension between the two, pointing out that when price-relevant information reaches the market through trading pressure rather than through a public announcement, liquidity may suffer. It also confronts many striking phenomena in securities markets and uses the analytical tools and empirical methods of market microstructure to understand them. These include issues such as why liquidity changes over time and differs across securities, why large trades move prices up or down, and why these price changes are subsequently reversed, and why we observe temporary deviations from asset fair values"--
Book Synopsis The Effect of Macroeconomic Uncertainty on Firm Decisions by : Saten Kumar
Download or read book The Effect of Macroeconomic Uncertainty on Firm Decisions written by Saten Kumar and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a new survey of firms in New Zealand, we document how exogenous variation in the macroeconomic uncertainty perceived by firms affects their economic decisions. We use randomized information treatments that provide different types of information about the first and/or second moments of future economic growth to generate exogenous changes in the perceived macroeconomic uncertainty of some firms. The effects on their decisions relative to their initial plans as well as relative to an untreated control group are measured in a follow-up survey six months later. We find that as firms become more uncertain, they reduce their prices, employment, and investment, their sales decline, and they become less likely to invest in new technologies or open new facilities. These ex-post effects of uncertainty are similar to how firms say they would respond to higher uncertainty when asked hypothetical questions.
Book Synopsis Uncertainty and Unemployment by : Sangyup Choi
Download or read book Uncertainty and Unemployment written by Sangyup Choi and published by International Monetary Fund. This book was released on 2015-02-23 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the role of uncertainty shocks in explaining unemployment dynamics, separating out the role of aggregate and sectoral channels. Using S&P500 data from the first quarter of 1957 to third quarter of 2014, we construct separate indices to measure aggregate and sectoral uncertainty and compare their effects on the unemployment rate in a standard macroeconomic vector autoregressive (VAR) model. We find that aggregate uncertainty leads to an immediate increase in unemployment, with the impact dissipating within a year. In contrast, sectoral uncertainty has a long-lived impact on unemployment, with the peak impact occurring after two years. The results are consistent with a view that the impact of aggregate uncertainty occurs through a “wait-and-see” mechanism while increased sectoral uncertainty raises unemployment by requiring greater reallocation across sectors.
Book Synopsis Long-term Investing Under Uncertain Parameter Instability by : Bart Keijsers
Download or read book Long-term Investing Under Uncertain Parameter Instability written by Bart Keijsers and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The relationship between excess returns and the dividend price ratio is known to be unstable. However, there is no consensus on the type of instability, i.e. few or many breaks. Differences in parameter instability affect the long-term investor in particular, as misspecification errors are exacerbated as the investment horizon increases. Therefore, we investigate the consequences of different types of break processes for a long-term investor. The break process is inferred with a mixture innovation model using Bayesian methods. This allows us to estimate the break risk and the uncertainty around it. The estimated parameters show substantial instability, with an average break probability of 20.6%. Assuming constant parameters can lead to losses of up to 16.3% in certainty equivalent return for the long-term investor, even if the break probability is small in reality. The costs of ignoring uncertainty regarding the instability are smaller, but non-negligible.
Book Synopsis Unequal We Stand by : Jonathan Heathcote
Download or read book Unequal We Stand written by Jonathan Heathcote and published by DIANE Publishing. This book was released on 2010-10 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: The authors conducted a systematic empirical study of cross-sectional inequality in the U.S., integrating data from various surveys. The authors follow the mapping suggested by the household budget constraint from individual wages to individual earnings, to household earnings, to disposable income, and, ultimately, to consumption and wealth. They document a continuous and sizable increase in wage inequality over the sample period. Changes in the distribution of hours worked sharpen the rise in earnings inequality before 1982, but mitigate its increase thereafter. Taxes and transfers compress the level of income inequality, especially at the bottom of the distribution, but have little effect on the overall trend. Charts and tables. This is a print-on-demand publication; it is not an original.
Book Synopsis Irreversibility, Uncertainty, and Investment by : Robert S. Pindyck
Download or read book Irreversibility, Uncertainty, and Investment written by Robert S. Pindyck and published by World Bank Publications. This book was released on 1989 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: Irreversible investment is especially sensitive to such risk factors as volatile exchange rates and uncertainty about tariff structures and future cash flows. If the goal of macroeconomic policy is to stimulate investment, stability and credibility may be more important than tax incentives or interest rates.
