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Investment with Uncertainty: Detection of Decomposed Uncertainty Factors Affecting Investment *1

October 2003
Munehisa Kasuya *2

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  • *1 The author would like to thank Shin-ichi Fukuda, Yasushi Iwamoto, Kazuo Ogawa, Makoto Saito, Kazuyuki Suzuki, Toshiaki Watanabe, and many staff at the Bank of Japan for their helpful suggestions and comments. I would also like to thank Megumi Arinaga (Shimizu), Sumie Yoshida and Sayaka Sasaki for their research assistance. The views expressed in this paper are those of the author. They do not necessarily reflect those of Bank of Japan or of the Research and Statistics Department.
  • *2 Research and Statistics Department, E-mail:


We empirically analyze the effects of uncertainty on investment, by types of uncertainty and by properties of stochastic processes; that is, permanent and transitory components separated from economic variables. According to our results, based on Japanese economic data, we find significant negative effects of uncertainty. As for types of uncertainty, uncertainty in the transitory component of the exchange rate has significant negative effects throughout the estimation period, and the uncertainty in the permanent component of the exchange rate had significant negative effects until the 1980s. In the late 1990s, the uncertainty in the permanent component of total debts of failed firms indicates significant negative effects.

investment nonlinearity, Tobin's q, uncertainty, Markov switching, MCMC

JEL classification: