Uncertainty-Induced Reallocations and Growth
Focusing on both micro and aggregate U.S. data, we show the existence of a significant link between aggregate uncertainty and reallocation of resources away from R&D-intensive capital. This link is important because a decrease in the aggregate share of R&D-oriented capital forecasts lower medium-term growth. In a multi-sector production economy in which (i) growth is endogenously supported by risky R&D investments, and (ii) the representative agent is volatility-risk averse and has access to other safer technologies that do not support growth, uncertainty shocks have a first-order negative impact on medium-term growth and welfare.
We thank K. Adams, N. Bloom, S. Davis, F. Gourio, K. Singleton, and A. Marcet for their early feedback. We thank our discussants M. Ulrich and I. Alfaro. We also thank the participants at the Asset Prices and the Macroeconomy Conference (U of Mannheim), Bocconi University, SITE, BI. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.