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Investment and Sales: Some Empirical Evidence

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Author Info
Andrew B. Abel
Olivier J. Blanchard

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2050.

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Date of creation: Jun 1989
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Handle: RePEc:nbr:nberwo:2050

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  1. Petya Koeva, 2001. "Time-to-Build and Convex Adjustment Costs," IMF Working Papers 01/9, International Monetary Fund. [Downloadable!]
  2. Giorgio Calcagnini & Germana Giombini & Enrico Saltari, 2009. "Firms’ Investment in the Presence of Labor and Financial Market Imperfections," Working Papers 0901, University of Urbino Carlo Bo, Department of Economics, revised 2009. [Downloadable!]
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