Local policy uncertainty and the firm's investment reaction to monetary policy

Abstract

Rising local economic policy uncertainty increases the firm's capital investment sensitivity to monetary shocks. This effect is driven by the tendency of uncertainty-driven precautionary behavior to increase the firm's propensity to reduce investment in response to contractionary monetary shocks. This effect is more pronounced for geographically bound firms that are financially constrained. Our results show how the investment effects of local economic policy uncertainty are entangled with the asymmetries that govern the economic impact of monetary policy.

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Authors/Creators:	Adra, S. Gao, Y. Yuan, J. https://orcid.org/0009-0000-9914-0561
Copyright, Publisher and Additional Information:	© 2023 Elsevier B.V. All rights reserved. This is an author produced version of an article published in Economics Letters made available under the CC-BY-NC-ND 4.0 license (http://creativecommons.org/licenses/by-nc-nd/4.0) in accordance with the publisher's self-archiving policy.
Keywords:	Monetary policy; Capital investments; Local economic policy uncertainty
Dates:	Accepted: 29 November 2023 Published (online): 2 December 2023 Published: January 2024
Institution:	The University of Leeds
Academic Units:	The University of Leeds > Faculty of Business (Leeds) > Accounting & Finance Division (LUBS) (Leeds)
Depositing User:	Symplectic Publications
Date Deposited:	18 Dec 2023 11:40
Last Modified:	18 Dec 2023 11:40
Status:	Published
Publisher:	Elsevier
Identification Number:	https://doi.org/10.1016/j.econlet.2023.111473

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Local policy uncertainty and the firm's investment reaction to monetary policy

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