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S. Bond is Visiting Professor at Oxford University; Research Fellow at Nuffield College, Oxford; and Programme Director at The Institute for Fiscal Studies (IFS). D. Lombardi is Advisor to the Executive Director for Italy. This project was started when he was in the Bank of Italy’s Research Department. The authors thank N. Bloom, R. Flood, T. Krueger, G. Parigi, and participants in the North American Econometric Society Meeting, University of Maryland for helpful comments. C. Di Benedetto and S. Siciarz provided excellent assistance with data and editing, respectively. The authors gratefully acknowledge financial support from the Economic and Social Research Council (ESRC), Oxford University, and the ESRC Centre for Fiscal Policy at IFS.
The supermodularity of a production function F(K1, K2,…, KN) is defined such that ∂F(K1, K2,…, KN)/∂Ki is increasing in all Kj, j ≠ i. See Dixit (1997).
The following section provides more details on the ECM specification.
Only 3.9 percent of the firms sampled in 1997 are listed.
See Carruth, Dickerson, and Henley (2000) for a survey of the most common measures of uncertainty employed in the investment literature.
Guiso and Parigi (1999) also reported that there was no clear relationship between their firm–level measure of uncertainty and a set of observable firm characteristics. The only exception was whether firms were privately-owned or state-owned. In our sample, the latter group is not present.