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Investment Under Monetary Uncertainty: A Panel Data Investigation

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dc.contributor.author Hughes Hallett, Andrew
dc.contributor.author Peersman, Gert
dc.contributor.author Piscitelli, Laura
dc.date.accessioned 2004-10-04T22:28:11Z
dc.date.available 2004-10-04T22:28:11Z
dc.date.issued 2004-04
dc.identifier.citation Hughes Hallett, Andrew, Gert Peersman, and Laura Piscitelli. "Investment Under Monetary Uncertainty: A Panel Data Investigation." Working Paper No. 04-W06. Dept. of Economics, Vanderbilt Universtiy. Nashville, TN, April 2004. en
dc.identifier.uri http://hdl.handle.net/1803/22
dc.description.abstract There is a presumption in the literature that price or exchange rate uncertainty, or uncertainty in the monetary conditions underlying them, will have a negative effect on investment. Some argue that this negative effect will be extended by imperfect competition. However, models of "irreversible" investment show that the situation is more complicated than that. In these models, investment expenditures are affected by the scrapping price available on world markets; and also by the opportunity cost of waiting rather than investing. The impact of uncertainty is therefore going to depend on the type of industry, and hence on the industrial structure of the economy concerned. In addition, it may depend on the persistence of any price "misalignments" away from competitive equilibrium. In this paper, we put these theoretical predictions to the test. We estimate investment equations for 13 different industries using data for 9 OECD countries over the period 1970-2000. We find the impact of price uncertainty is negative or insignificant in all but one case. But the impact of (nominal) exchange rate uncertainty is negative in only 6 cases. It is positive in 4 cases, and insignificant in 3 others. In addition, there are conflicting effects from the real exchange rate. The net effect depends on whether the source of the uncertainty is in domestic markets or in foreign markets. en
dc.format.extent 389542 bytes
dc.format.mimetype application/pdf
dc.language.iso en_US
dc.publisher Vanderbilt University. Dept. of Economics en
dc.relation.ispartofseries Working Paper
dc.subject Investment en
dc.subject Price en
dc.subject Exchange rate en
dc.title Investment Under Monetary Uncertainty: A Panel Data Investigation en
dc.type Working Paper en


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