Uncertainty, Risk, and Capital Growth
Abstract/Contents
- Abstract
- Times of elevated aggregate uncertainty are associated with lower investment, but surprisingly, future capital growth does not drop and even increases in the data. To reconcile this novel evidence, we show that high uncertainty predicts lower utilization and depreciation of existing capital, which dominates the reduction in new investment. We construct and estimate a general-equilibrium model to explain the relation between uncertainty and capital accumulation. In the model, precautionary saving is achieved by lowering utilization, instead of increasing investment. Lower utilization persistently decreases depreciation, conserving capital for the future, and simultaneously, discourages new investment. This channel amplifies stock price exposure to uncertainty risks, especially for firms with more flexible utilization, which we confirm in the data. We further show the importance of our mechanism to generate a negative impact of uncertainty shocks in an extended New-Keynesian framework.
Description
| Type of resource | text |
|---|---|
| Date created | July 29, 2021 |
Creators/Contributors
| Author | Segal, Gill |
|---|---|
| Author | Shaliastovich, Ivan |
| Organizer of meeting | Judd, Kenneth |
| Organizer of meeting | Pohl, Walter |
| Organizer of meeting | Schmedders, Karl |
| Organizer of meeting | Wilms, Ole |
Subjects
| Subject | uncertainty |
|---|---|
| Subject | utilization |
| Subject | depreciation |
| Subject | RBC |
| Subject | recession |
| Subject | equity premium |
| Subject | risk |
| Genre | Text |
Bibliographic information
Access conditions
- Use and reproduction
- User agrees that, where applicable, content will not be used to identify or to otherwise infringe the privacy or confidentiality rights of individuals. Content distributed via the Stanford Digital Repository may be subject to additional license and use restrictions applied by the depositor.
- License
- This work is licensed under a Creative Commons Attribution 4.0 International license (CC BY).
Preferred citation
- Preferred citation
- Segal, G. and Shaliastovich, I. (2022). Uncertainty, Risk, and Capital Growth. Stanford Digital Repository. Available at https://purl.stanford.edu/xk094fw2581
Collection
SITE Conference 2021
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