To Buy or Not to Buy? Uncertainty, Irreversibility and Heterogeneous Investment Dynamics in Italian Company Data
IMF Working Papers, June 1, 2004
Source details
- Canonical URL
- To Buy or Not to Buy? Uncertainty, Irreversibility and Heterogeneous Investment Dynamics in Italian Company Data
Other formats
Bibliographic details
- Authors: Domenico Lombardi, Stephen Bond
- Published: June 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451948011.001
Summary
- Tests for the presence of real options effects induced by uncertainty and (partial) irreversibility on fixed capital investment using Italian company data.
- Recognizes that firm-level investment spending may be aggregated over multiple investment decisions in separate types of capital goods.
- Emphasizes effects of uncertainty on short-run investment dynamics.
- Uses a survey-based measure of uncertainty related to the assessment of managers responsible for the firms' investment plans.
- Finds evidence of heterogeneous and nonlinear dynamics pointing to a slower adjustment of investment in response to demand shocks at higher levels of uncertainty.
- Results also point to an additional source of nonlinearity originating from a convex response of investment to demand shocks.
Findings and Key Results
- Evidence of heterogeneous investment dynamics across firms.
- Slower adjustment of investment in response to demand shocks at higher levels of uncertainty.
- Additional nonlinearity: a convex response of investment to demand shocks.
Methodology and Data
- Firm-level analysis using Italian company data.
- Employs a survey-based measure of uncertainty derived from managers' assessments of firms' investment plans.
- Emphasizes short-run dynamics and recognizes aggregation of multiple investment decisions across types of capital goods.
Subject Areas and Keywords
- Subject: Bonds, Capital accumulation, Econometric analysis, Economic sectors, Estimation techniques, Financial institutions, Manufacturing, National accounts, Stocks
- Keywords: Africa, Bonds, Capital accumulation, capital stock, demand shock, Estimation techniques, firm level, forecast error, Investment, investment behavior, investment series, low-uncertainty firm, Manufacturing, Panel Data, Real Options, Stocks, WP