Investment with Uncertainty: Detection of Decomposed Uncertainty Factors Affecting Investment

We empirically analyze the effects of uncertainty on investment, by types of uncertainty and by properties of stochastic processes; that is, permanent and transitory components separated from economic variables. According to our results, based on Japanese economic data, we find significant negative effects of uncertainty. As for types of uncertainty, uncertainty in the transitory component of the exchange rate has significant negative effects throughout the estimation period, and the uncertainty in the permanent component of the exchange rate had significant negative effects until the 1980s. In the late 1990s, the uncertainty in the permanent component of total debts of failed firms indicates significant negative effects.