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Policy uncertainty and investment in Spain

Author

Listed:
  • Daniel Dejuán

    (Banco de España)

  • Corinna Ghirelli

    (Banco de España)

Abstract

The aim of this paper is to investigate the effect of policy uncertainty on firms’ investment decisions. We focus on Spain for the period 1998-2014. To measure policy-related uncertainty, we use a new macroeconomic indicator constructed for this country. We find strong evidence that policy uncertainty reduces corporate investment. Furthermore, the heterogeneous results suggest that the adverse effect of policy uncertainty is particularly relevant for highly vulnerable firms. In particular, non-exporting firms, small and medium enterprises, as well as firms in poorer financial condition are shown to decrease investment significantly more than their counterparts. Overall, these results are consistent with the hypotheses that policy-related uncertainty reduces corporate investment through increases in precautionary savings or to worsening of credit conditions.

Suggested Citation

  • Daniel Dejuán & Corinna Ghirelli, 2018. "Policy uncertainty and investment in Spain," Working Papers 1848, Banco de España.
    • Handle: RePEc:bde:wpaper:1848
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    More about this item

    Keywords

    corporate investment; policy uncertainty; financial frictions.;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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