Working Paper: NBER ID: w1122
Authors: Andrew B. Abel; Olivier J. Blanchard
Abstract: Most of the empirical work on investment is based on the existence of a relation between investment and the expected present val of marginal profits.Thus, in this paper we compute such a present value series, under various assumptions about demand and technology and examine its relation to investment.We find that variations in this present value series are, surprisingly,due more to variations in the cost of capital than to variations in marginal profit. We also find that the present value series, although significantly related to investment, still leaves unexplained a large, serially correlated fraction of investment.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cost of capital (G31) | investment (G31) |
| marginal q (C21) | investment (G31) |
| cost of capital (G31) | marginal q (C21) |
| marginal profits (D40) | investment (G31) |