Working Paper: CEPR ID: DP12710
Authors: Rüdiger Bachmann; Peter Zorn
Abstract: The ifo Investment Survey asks firms in the German manufacturing sector about the importance of sales, technological factors, finance, return expectations, and macroeconomic policy for their investment activity in a given year. We show that these subjective investment determinants 1) capture economically what their labels suggest, and 2) have strong explanatory power for aggregate manufacturing investment growth fluctuations. In a second step, we use these determinants to identify aggregate demand and aggregate technology shocks and argue that the bulk of the variance of both aggregate manufacturing investment and output growth fluctuations (as much as approximately two thirds in both cases) is explained by aggregate demand shocks. Consistent with neoclassical views, however, technological factors are the most important investment determinant on average.
Keywords: investment dynamics; investment determinants; survey data; narrative approach; aggregate demand shocks; sentiment shocks
JEL Codes: D90; D91; E20; E22; E30; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| aggregate demand shocks (E00) | aggregate manufacturing investment growth (E22) |
| aggregate demand shocks (E00) | sales investment determinant (G31) |
| aggregate technology shocks (E19) | technological factors investment determinant (O14) |
| aggregate technology shocks (E19) | aggregate manufacturing investment growth (E22) |
| aggregate demand shocks (E00) | producer price inflation (PPI) (E31) |
| aggregate technology shocks (E19) | producer price inflation (PPI) (E31) |