Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144259
Authors: 
Fuss, Catherine
Vermeulen, Philip
Year of Publication: 
2004
Series/Report no.: 
Working Paper Research 45
Abstract: 
We estimate the effect of demand and price uncertainty on firms' investment decisions from a panel of manufacturing firms. Uncertainty measures are derived from firms' subjective qualitative expectations. They are close to their theoretical counterparts, the variances of future demand and price shocks. We find that demand uncertainty depresses planned and realized investment, while price uncertainty is insignificant. This is consistent with the behavior of monopolistic firms with irreversible capital (Caballero, 1991). Further, firms revise their investment plans very little. They may do so in response to new information on sales growth, but not as a result of reduced uncertainty.
Subjects: 
investment
uncertainty
real options
survey data
panel data
JEL: 
D21
D24
D81
D92
C23
Document Type: 
Working Paper

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