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Market-Based Solutions to Vital Economic Issues
Research
Dec 5, 2017

Uncertainty-Induced Reallocations and the Macroeconomy

Abstract

Focusing on U.S. data, we show the existence of a significant positive link between uncertainty and reallocation of resources from private R&D-intensive firms to both tangible private capital and government capital. This link is important because a decrease in the aggregate share of private R&D-oriented capital forecasts lower medium-term growth. We rationalize these novel empirical findings in a multi-sector production economy in which (i) growth is endogenously supported by risky R&D investments, (ii) the government accumulates capital that, at the equilibrium, is safe; and (iii) the representative agent has an explicit fear toward uncertainty.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.


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