increase their liquidity ratios when macroeconomic uncertainty or idiosyncratic uncertainty increases. …This paper investigates the link between the optimal level of non-financial firms' liquid assets and uncertainty. We … develop a partial equilibrium model of precautionary demand for liquid assets showing that firms alter their liquidity ratio …

uncertainty. We develop a structural model of a firm's value maximization problem that predicts that as macroeconomic un-certainty … macroeconomic uncertainty increases, firms decrease their levels of leverage. Furthermore, we demonstrate that our results are …

We propose uncertainty shocks as a new shock that drives business cycles. First, we demonstrate that microeconomic … uncertainty is robustly countercyclical, rising sharply during recessions, particularly during the Great Recession of 2007 …-2009. Second, we quantify the impact of time-varying uncertainty on the economy in a dynamic stochastic general equilibrium model …

This paper shows that, with (partial) irreversibility, higher uncertainty reduces the impact effect of demand shocks on … investment. Uncertainty increases real option values making firms more cautious when investing or disinvesting. This is confirmed … both numerically for a model with a rich mix of adjustment costs, time-varying uncertainty, and aggregation over investment …

A growing body of evidence suggests that uncertainty is counter cyclical, rising sharply in recessions and falling in … booms. But what is the causal relationship between uncertainty and growth? To identify this we construct cross country panel …

Uncertainty appears to vary strongly over time, temporarily rising by up to 200% around major shocks like the Cuban … Missile crisis, the assassination of JFK and 9/11. This paper offers the first structural framework to analyze uncertainty …. The parameterized model is then used to simulate a macro uncertainty shock, which produces a rapid drop and rebound in …

macroeconomic and idiosyncratic sources of uncertainty. We develop a structural model of a firm's value maximization problem that … predicts a negative relationship between uncertainty and optimal levels of borrowing. This proposition is tested using a panel … confirm that as either form of uncertainty increases, firms decrease their levels of short-term leverage. This effect is …

-level uncertainty. We develop a structural model of a firm's value maximization problem that predicts that as industry-level uncertainty … increases the firm will increase its optimal level of liquidity. We test this hypothesis using a panel of German firms drawn … from the Bundesbank's balance sheet database and show that greater uncertainty at the industry level causes firms to …

Uncertainty varies strongly over time, rising by 50% to 100% in recessions and by up to 200% after major economic and … political shocks. This paper shows that higher uncertainty reduces the responsiveness of R&D to changes in business conditions … - a “caution-effect” - making it more persistent over time. Thus, uncertainty will play a critical role in shaping the …

We provide theoretical and empirical evidence that policy uncertainty can significantly affect firm level investment … and entry decisions in the context of international trade. When market entry costs are sunk, policy uncertainty can create … a real option value of waiting to enter foreign markets until conditions improve or uncertainty is resolved. Using a …