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Investment in Swedish Manufacturing: Analysis and Forecasts

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  • Assarsson, Bengt

    ()
    (Monetary Policy Department, Central Bank of Sweden)

  • Berg, Claes

    ()
    (Monetary Policy Department, Central Bank of Sweden)

  • Jansson, Per

    (Monetary Policy Department, Central Bank of Sweden)

Abstract

This paper uses a neoclassical investment model extended with installation costs for capital, agency costs for investment financing, and the possibility of the firm being output constrained as a framework for an empirical analysis of investment behaviour in the Swedish manufacturing industry. The theory is implemented within a multivariate error-correction approach on data covering the time period 1951 to 1995, and we gain the following main results: (1) Tobin’s average Q is not the sole determinant of investment, neither in the short nor in the long run, and other variables like real output and capital gearing also affect investment activity; (2) the out-of-sample forecasts of the model track the evolution of actual investment growth quite impressively, especially at short- and medium-term horizons (1-2 years); (3) a relative equity-price variable is shown to constitute a good approximation of average Q, both for empirical modelling in general and forecasting in particular.

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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 95.

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Length: 31 pages
Date of creation: 01 Oct 1999
Date of revision:
Publication status: Published in Empirical Economics, 2004, pages 261-280.
Handle: RePEc:hhs:rbnkwp:0095

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
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Web page: http://www.riksbank.com/
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Related research

Keywords: Forecasting investment; Multivariate error-correction model; Neoclassical investment theory; Tobin's Q;

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Cited by:
  1. Bent Nielsen & Andrew Whitby, 2012. "A Joint Chow Test for Structural Instability," Economics Series Working Papers, University of Oxford, Department of Economics 2012-W07, University of Oxford, Department of Economics.
  2. Johan Eklund, 2010. "Q-theory of investment and earnings retentions—evidence from Scandinavia," Empirical Economics, Springer, Springer, vol. 39(3), pages 793-813, December.

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