Investment and Subjective Uncertainty
November 2022
Working Paper Number:
CES-22-52
Abstract
A longstanding challenge in evaluating the impact of uncertainty on investment is obtaining measures of managers' subjective uncertainty. We address this challenge by using a detailed new survey measure of subjective uncertainty collected by the U.S. Census Bureau for approximately 25,000 manufacturing plants. We find three key results. First, investment is strongly and robustly negatively associated with higher uncertainty, with a two standard deviation increase in uncertainty associated with about a 6% reduction in investment. Second, uncertainty is also negatively related to employment growth and overall shipments (sales) growth, which highlights the damaging impact of uncertainty on firm growth. Third, flexible inputs like rental capital and temporary workers show a positive relationship to uncertainty, demonstrating that businesses switch from less flexible to more flexible factor inputs at higher levels of uncertainty.
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:
investment,
econometric,
macroeconomic,
manufacturing,
earnings,
export,
financial,
finance,
recession,
stock,
invest,
risk
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including "organizations." By filtering for frequent words and phrases labeled as "organizations", papers are
identified to contain references to specific institutions, datasets, and other organizations.
:
Annual Survey of Manufactures,
National Science Foundation,
Ordinary Least Squares,
National Bureau of Economic Research,
Securities and Exchange Commission,
Quarterly Journal of Economics,
Federal Reserve Bank,
American Economic Review,
Journal of Econometrics,
Review of Economic Studies,
Census Bureau Center for Economic Studies,
Princeton University Press,
Federal Reserve System,
Census of Manufacturing Firms,
Journal of Economic Perspectives,
Journal of Economic Literature,
Board of Governors,
North American Industry Classification System,
Sloan Foundation,
Census Bureau Disclosure Review Board,
Kauffman Foundation,
Management and Organizational Practices Survey
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