Empirical Economics

, Volume 29, Issue 1, pp 115–128 | Cite as

The effect of uncertainty on UK investment authorisation: Homogenous vs. heterogeneous estimators

  • Ciaran Driver
  • Katsushi Imai
  • Paul Temple
  • Giovanni Urga

Abstract.

This paper compares pooled and non-pooled models of UK capital investment using the Confederation of British Industry’s (CBI) Industrial Trends Survey, focusing on the impact of uncertainty. The uncertainty measure is based on the cross sectional dispersion of optimism about the future business conditions in the industry in which the firm operates. The panel data estimation shows that uncertainty has quantitatively important negative effects on investment. However, if we look at the estimation results at the industry level, we find a great diversity in both estimated elasticities and t-statistics, providing valuable information not available from the pooled model. Finally, we compare the forecast performances of the above models; this analysis confirms that pooled estimators are generally better than non-pooled estimators in terms of out-of-sample forecast performance, but the difference between the two is not very large.

Keywords

Investment uncertainty panel data estimation 

JEL classification

E22 C23 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Copyright information

© Springer-Verlag 2004

Authors and Affiliations

  • Ciaran Driver
    • 1
  • Katsushi Imai
    • 2
  • Paul Temple
    • 3
  • Giovanni Urga
    • 4
  1. 1.Department of EconomicsImperial College Business SchoolLondon UK
  2. 2.University of Oxford UK
  3. 3.University of SurreyUK
  4. 4.Faculty of Finance, Cass Business SchoolLondon UK

Personalised recommendations