Max CROCE - professor in finance (NBER and CEPR)
Uncertainty-Induced Reallocations and Growth
R. Bansal / M. Croce / W. Liao / S. Rosen
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.