We derive robust predictions on the effects of uncertainty on short run investment dynamics in a broad class of models … of the capital stock is ambiguous. An investment model is estimated to test these theoretical predictions using a panel …

rate of investment. This is proven for both the standard investment model with Cobb-Douglas production and Brownian motion … options and irreversibility, however, are shown to play an important role in the short run dynamics of investment and labor … demand. Specifically, they reduce the short run response of investment and hiring to current demand shocks, and lead to a …