This paper provides new evidence for Italy about the interaction between the degree of uncertainty perceived by the managers of a company and its investment choices and demand for labour, factor utilization and liquidity holdings.
An increase in perceived uncertainty leads to a simultaneous reduction in the utilization of labour and capital and to an increase in liquidity holdings, and to a subsequent reduction in investment in the following years. The source of uncertainty matters, with firms responding only to downside uncertainty, that is, uncertainty about future adverse outcomes.
Published in 2023 in: Journal of Monetary Economics, v. 140, pp. 92-105.
