14:15 - 15:45
Uncertainty-induced Reallocations, Innovation and Growth
Focusing on both micro and aggregate U.S. data, we document the existence of a significant link between aggregate uncertainty, capital market valuations and reallocation of resources away from risky R&D-intensive capital.
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The research of finance professor Mariano Massimiliano Croce focuses on asset pricing in general equilibrium models in which there is uncertainty about the long horizon perspectives of the economy (growth news shocks).
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Focusing on both micro and aggregate U.S. data, we document the existence of a significant link between aggregate uncertainty, capital market valuations and reallocation of resources away from risky R&D-intensive capital. This link is important because a decrease in the aggregate share of R&D-oriented investments forecasts lower medium-term growth. We study a three-sector model in which one sector features relatively risky R&D-intensive capital essential to sustain growth, whereas the other sectors feature safer capital that is not innovation-intensive. Our model accounts for our empirical evidence as uncertainty shocks prompt sectoral reallocations and feature a first-order negative impact on medium-term growth. Read more ...
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