Working Paper: NBER ID: w0502
Authors: Ben S. Bernanke
Abstract: The optimal timing of real investment is studied under the assumptions that investment is irreversible and that new information about returns is arriving over time. Investment should be undertaken in this case only when the costs of deferring the project exceed the expected value of information gained by waiting. Uncertainty, because it increases the value of waiting for new information, retards the current rate of investment. The nature of investor's optimal reactions to events whose implications are resolved over time is a possible explanation of the instability of aggregate investment over the business cycle.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Uncertainty (D89) | Value of Waiting (J17) |
| Value of Waiting (J17) | Investment Decision (G11) |
| Uncertainty (D89) | Investment Decision (G11) |
| Investment Decision (G11) | Stochastic Nature of Information Arrival (D89) |
| Value of Waiting (J17) | Stochastic Nature of Information Arrival (D89) |