Investment Under Up- and Downstream Uncertainty

Fotis Grigoris; Gill Segal

doi:10.25740/hx038hg9167

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Investment Under Up- and Downstream Uncertainty

Working paper

Open access

Investment Under Up- and Downstream Uncertainty

Fotis Grigoris and Gill Segal

Stanford Digital Repository

05/29/2024

DOI: 10.25740/hx038hg9167

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https://doi.org/10.25740/hx038hg9167View

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Abstract

We study the transmission of uncertainty shocks in production networks and find that their impact on economic activity depends on their source in supply chains. A real-option framework with time-to-build predicts that only upstream uncertainty suppresses investment, since upstream (downstream) uncertainty from suppliers (customers) affects the shorter-run (longer-run). Consistently, production-network data show that upstream uncertainty propagates downstream, affecting firm-level outcomes negatively. Conversely, downstream uncertainty propagates upstream more weakly but affects firm-level outcomes positively. At the macro-level, these two uncertainties oppositely predict aggregate growth and asset prices. Overall, downstream uncertainty has an expansionary effect, in contrast to other facets of uncertainty.

Investment

Macro-Finance

Production Network

Real option

Time to Build

Uncertainty

Details

Title: Subtitle: Investment Under Up- and Downstream Uncertainty
Creators: Fotis Grigoris
Gill Segal
Resource Type: Working paper
DOI: 10.25740/hx038hg9167
Publisher: Stanford Digital Repository
Number of pages: 72 pages
Language: English
Date posted: 05/29/2024
Academic Unit: Finance
Record Identifier: 9984634158702771

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