Investment and Subjective Uncertainty

28 Pages Posted: 21 Nov 2022 Last revised: 12 Dec 2022

See all articles by Nicholas Bloom

Nicholas Bloom

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

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER); Hoover Institution

Lucia Foster

U.S. Census Bureau - Center for Economic Studies

Scott Ohlmacher

Board of Governors of the Federal Reserve System

Itay Saporta-Eksten

Tel Aviv University

Multiple version iconThere are 3 versions of this paper

Date Written: November 2022

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.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Bloom, Nicholas and Davis, Steven J. and Foster, Lucia and Ohlmacher, Scott and Saporta-Eksten, Itay, Investment and Subjective Uncertainty (November 2022). NBER Working Paper No. w30654, Available at SSRN: https://ssrn.com/abstract=4282504

Nicholas Bloom (Contact Author)

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

Steven J. Davis

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7312 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hoover Institution

434 Galvez Mall
Stanford University
Stanford, CA 94305-6010
United States
773 251 1795 (Phone)

Lucia Foster

U.S. Census Bureau - Center for Economic Studies ( email )

4700 Silver Hill Road
Washington, DC 20233
United States

Scott Ohlmacher

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Itay Saporta-Eksten

Tel Aviv University

Ramat Aviv
Tel-Aviv, 6997801
Israel

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
16
Abstract Views
116
PlumX Metrics