To Buy or Not to Buy? Uncertainty, Irreversibility and Heterogeneous Investment Dynamics in Italian Company Data
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Summary:
This study tests for the presence of real options effects induced by uncertainty and (partial) irreversibility on fixed capital investment using Italian company data. The approach recognizes that firm-level investment spending may, itself, be aggregated over multiple investment decisions in separate types of capital goods and emphasizes effects of uncertainty on short-run investment dynamics. Using a survey-based measure of uncertainty related to the assessment of managers responsible for the firms' investment plans, the study finds evidence of heterogeneous and nonlinear dynamics pointing to a slower adjustment of investment in response to demand shocks at higher levels of uncertainty. The results also point to an additional source of nonlinearity originating from a convex response of investment to demand shocks.
Series:
Working Paper No. 2004/104
Subject:
Bonds Capital accumulation Econometric analysis Economic sectors Estimation techniques Financial institutions Manufacturing National accounts Stocks
English
Publication Date:
June 1, 2004
ISBN/ISSN:
9781451948011/1018-5941
Stock No:
WPIEA1042004
Pages:
29
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