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