Uncertainty-Induced Reallocations and Growth
59 Pages Posted: 18 Nov 2016 Last revised: 26 Aug 2019
Date Written: December 4, 2016
Focusing on both micro and aggregate U.S. data, we show the existence of a significant link between aggregate uncertainty and reallocation of resources away from R&D-intensive capital. This link is important because a decrease in the aggregate share of R&D-oriented capital forecasts lower medium-term growth. In a multi-sector production economy in which (i) growth is endogenously supported by risky R&D investments, and (ii) the representative agent is volatility-risk averse and has access to other safer technologies that do not support growth, uncertainty shocks have a first-order negative impact on mediumterm growth and welfare.
Keywords: Uncertainty shocks, Reallocation, Growth
JEL Classification: E3; E6; G18
Suggested Citation: Suggested Citation