Why is Micro Evidence on the Effects of Uncertainty Not Replicated in Macro Data?

36 Pages Posted: 3 Mar 2006

See all articles by Stephen R. Bond

Stephen R. Bond

Nuffield College; Institute for Fiscal Studies (IFS)

Domenico Lombardi

Banca di San Marino

Date Written: August 2005


This study investigates the relationship between uncertainty and investment using U. K. data at different levels of aggregation. Motivated by a comparative econometric analysis using a firm-level panel and aggregate time-series data, we analyze the implications of aggregating nonlinear microeconomic processes. Replicating firm-level evidence that uncertainty influences investment dynamics proves to be challenging. Even using perfectly consistent data sources, this requires both exact aggregation of the underlying micro equations, and controlling for the unobserved influences on investment that are commonly subsumed into time dummies in panel studies. These conditions are unlikely to be satisfied in most aggregate econometric studies.

Keywords: Aggregation, Investment, Uncertainty

JEL Classification: C20, D8, D92, E22

Suggested Citation

Bond, Stephen R. and Lombardi, Domenico, Why is Micro Evidence on the Effects of Uncertainty Not Replicated in Macro Data? (August 2005). IMF Working Paper, Vol. , pp. 1-36, 2005. Available at SSRN: https://ssrn.com/abstract=888027

Stephen R. Bond (Contact Author)

Nuffield College ( email )

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Domenico Lombardi

Banca di San Marino ( email )

San Marino

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