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Aeimit Lakdawala
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Journal Articles
Publisher: Journals Gateway
The Review of Economics and Statistics 1–28.
Published: 18 March 2024
Abstract
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We show that firms which face higher uncertainty adjust their investment less in response to monetary policy shocks. We find corroborating evidence of this differential effect from firm-level stock returns on FOMC announcement days. Our results are consistent with a real options (or “wait-and-see”) channel whereby higher uncertainty dampens the response to changes in business conditions. Consistent with this mechanism the dampening effect is stronger for firms that face higher reversibility costs of investment.
Includes: Supplementary data