Summary: | Using UK manufacturing data, this study attempts to identify the presence of irreversible investment considerations at the industry group level of aggregation, and investment disaggregated by investment good category, and its influence on investment patterns and relationships. A selection of asymmetry tests is utilised in an attempt to identify 'lumpy' patterns induced into the investment series when it is irreversible, before attempting to directly identify investment irreversibility with the use of Ramsey and Rothman's (1996) time reversibility test. A second theme of investigation concentrates on testing for a negative investment-uncertainty relationship, which it is suggested will hold in the presence of irreversible investment. The uncertainty relationship is examined indirectly initially, through the relationship of output growth to output growth uncertainty, as modelled through the application of an Asymmetric Power Autoregressive Conditionally Heteroskedastic in Mean (APARCH-M) model. The uncertainty relationship is then subject to further, more direct scrutiny, through examination of the relationship of investment to output growth uncertainty, effect on investment being modelled using the previously applied APARCH-M models. A final approach utilises a non-linear Self Exciting Threshold Autoregressive (SETAR) model to represent investment to account for 'lumpy' investment patterns. While evidence of asymmetry is relatively weak, a number of industry groups (Engineering, Fuels and Textiles) are found to display time irreversibility. It is found that these industry groups are more likely to display negative investment-uncertainty relationships, especially when modelled directly rather than through the output growth-uncertainty relationship. These investmentuncertainty relationships are also found to hold with the imposition of the SETAR model, which is found to successfully explain much of the neglected non-linearity present when investment is modelled with the use of linear autoregressive models. This study suggests, therefore, that industry groups display investment patterns that are heterogeneous in nature, and where irreversible investment characterises the investment patterns at the industry group level of aggregation for certain groups, but not all groups.
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