Short and Long Run Uncertainty

46 Pages Posted: 28 Aug 2017

See all articles by Jose Maria Barrero

Jose Maria Barrero

ITAM - Business School

Nicholas Bloom

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Ian J. Wright

Goldman Sachs - Goldman Sachs

Multiple version iconThere are 2 versions of this paper

Date Written: August 2017

Abstract

Uncertainty appears to have both a short-run and a long-run component, which we measure using firm and macro implied volatility data from options of 30 days to 10 years duration. We ask what may be driving uncertainty over these different time horizons, finding that oil price volatility is particularly important for short-run uncertainty, policy uncertainty is particularly important for long-run uncertainty, while currency volatility and CEO turnover appear to equally impact short- and long-run uncertainty. Examining a panel of over 4,000 firms from 1996 to 2013 we find that R&D is relatively more sensitive to long-run uncertainty than investment, and in turn investment is relatively more sensitive to long-run uncertainty than hiring. In a simulation model we investigate the channels underlying this pecking-order response to long-run uncertainty, and show that lower depreciation rates and higher adjustment costs lead R&D and investment to be more sensitive to longer-run uncertainty than hiring. Collectively, these results suggest that recent events that have raised long-run policy uncertainty may be particularly damaging to growth by reducing R&D and investment.

Suggested Citation

Barrero, Jose Maria and Bloom, Nicholas and Wright, Ian J., Short and Long Run Uncertainty (August 2017). NBER Working Paper No. w23676. Available at SSRN: https://ssrn.com/abstract=3027828

Jose Maria Barrero (Contact Author)

ITAM - Business School ( email )

Rio Hondo No. 1
Col. Tizapan-San Angel Alc. Alvaro Obregon
Ciudad de Mexico, 01000
Mexico

Nicholas Bloom

Stanford University - Department of Economics ( email )

Landau Economics Building, Room 231
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-7836 (Phone)

HOME PAGE: http://economics.stanford.edu/faculty/bloom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ian J. Wright

Goldman Sachs - Goldman Sachs ( email )

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