This paper shows a non-linear relationship between investment and interest rates under uncertainty. Since the interest rate’s variance is positively related to the investment’s value (through the discount factor) and, generally, is also positively related to the interest rate’s level, then, at the same time, a negative (classical) and a positive (through the interest rate’s variance) relationship links interest rates to investment. Hence, an ultimate and even positive relationship between investment and interest rates’ (expected) level may occur. A specific model is proposed and the conditions upon which the positive effect occurs are derived. Some estimates are also proposed.
NPV Interest rates models GMMGARCH model Threshold model
E22 E43 G31
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