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

August 1, 2005

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Format: Chicago

Domenico Lombardi, and Stephen Bond. Why is Micro Evidenceon the Effects of Uncertainty Not Replicated in Macro Data?, (USA: International Monetary Fund, 2005) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Bonds, Econometric analysis, Economic sectors, Financial institutions, Manufacturing, Production, Production growth, Stocks, Time series analysis

Keywords: Aggregation, Bonds, Error correction term, Global, Investment, Investment data, Investment decision, Investment dynamics, Investment equation, Manufacturing, Production growth, Stocks, Time series, Time series analysis, Uncertainty, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/158
Stock No:

WPIEA2005158
ISBN:

9781451861778
ISSN:

1018-5941

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