Working Paper: NBER ID: w2050
Authors: Andrew B. Abel; Olivier J. Blanchard
Abstract: This paper attempts to give a structural interpretation to the distributed lag of sales on investment at the two-digit level in US manufacturing. It first presents a simple model which captures the various sources of lags and their respective implications. It then estimates the model, using both data on investment and sales as well as direct evidence on the sources of lags. The spirit of the paper is exploratory ; the model is used mainly as a vehicle to construct, present and interpret the data. We find that the following model can roughly generate the distributed lag structure found in the data. Firms face delivery lags of 3 quarters. They also face adjustment costs, which lead them to take into account expected future sales, with discount factor -9 when constructing the desired capital stock, and to close about 5% of the gap between actual and desired capital per quarter. They pay for orders at a constant rate between the time of order and that of delivery. The model is however not very successful in explaining differences in dynamics across sectors.
Keywords: Investment; Sales; Manufacturing; Distributed Lag
JEL Codes: E22; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sales (M31) | investment (G31) |
| current sales (M31) | expected future sales (G17) |
| expected future sales (G17) | investment (G31) |
| sales (M31) | desired capital stock (E22) |
| investment (G31) | actual capital stock (E22) |
| sales (M31) | adjustment of capital stock (E22) |