Real and Financial Uncertainty and Investment Decisions

Posted: 19 Sep 2000  

Giorgio Calcagnini

University of Urbino Carlo Bo - Faculty of Economics; Università Politecnica delle Marche - Money and Finance Research Group (Mo.Fi.R.)

Enrico Saltari

Department of Economics & Law

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Abstract

This paper aims at analyzing the role of uncertainty on investment. In our analysis, we will follow recent economic literature concerning stochastic models of irreversible investment and restrict our attention to the Italian economy. We show that theoretically, and in the presence of irreversibility, demand and interest rate uncertainty both reduce demand for capital. Our empirical results support the traditional interpretation according to which expected demand growth rates positively affect investment, while the interest rate level is negatively correlated to the accumulation rate. As for uncertainty, investment decisions in Italy are negatively affected by demand volatility, while interest rate volatility seems to play no significant role.

JEL Classification: E22

Suggested Citation

Calcagnini, Giorgio and Saltari, Enrico, Real and Financial Uncertainty and Investment Decisions. Journal of Macroeconomics, Vol. 22, No. 3, Summer 2000. Available at SSRN: https://ssrn.com/abstract=228954

Giorgio Calcagnini (Contact Author)

University of Urbino Carlo Bo - Faculty of Economics ( email )

Via Saffi 42
61029 Urbino
Italy
+39 0722 305565 (Phone)
+39 0722 305550 (Fax)

HOME PAGE: http://www.econ.uniurb.it/calcagnini

Università Politecnica delle Marche - Money and Finance Research Group (Mo.Fi.R.) ( email )

Piazzale Martelli, 8
Ancona, 60100
Italy

HOME PAGE: http://www.econ.uniurb.it/calcagnini

Enrico Saltari

Department of Economics & Law ( email )

via del Castro Laurenziano, 9
Rome, RM 00161
Italy

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