The Present Value of Profits and Cyclical Movements in Investment
AbstractMost 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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Bibliographic InfoArticle provided by Econometric Society in its journal Econometrica.
Volume (Year): 54 (1986)
Issue (Month): 2 (March)
Other versions of this item:
- Andrew B. Abel & Olivier J. Blanchard, 1983. "The Present Value of Profits and Cyclical Movements in Investment," NBER Working Papers 1122, National Bureau of Economic Research, Inc.
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- Blanchard, Olivier J. & Wyplosz, Charles, 1981. "An empirical structural model of aggregate demand," Journal of Monetary Economics, Elsevier, vol. 7(1), pages 1-28.
- Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
- Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321.
- Abel, Andrew B., 1980. "Empirical investment equations : An integrative framework," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 12(1), pages 39-91, January.
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