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Some evidence on financial factors in the determination of aggregate business investment for the G7

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  • Professor E. Philip Davis

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Abstract

Standard theories of investment behaviour have concentrated on the neoclassical and Tobin's Q approaches, with most empirical work on aggregate data focusing on the former. In contrast, a separate literature on monetary transmission, centred on the credit channel and financial accelerator effects, has highlighted the potential impact of credit market imperfections in constraining the investment behaviour of firms. In this paper we present evidence at a macro level for the G7 countries that a broad range of financial variables, consistent with the valuation ratio, financial accelerator and credit channel approaches, are relevant determinants of business fixed investment above those variables normally included in traditional macroeconomic investment functions. The results indicate a wider incidence of these financial effects on investment than the existing literature, focused as it is on the US, would otherwise indicate.

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Bibliographic Info

Paper provided by National Institute of Economic and Social Research in its series NIESR Discussion Papers with number 155.

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Date of creation: May 2001
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Handle: RePEc:nsr:niesrd:155

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Cited by:
  1. Jennifer Castle & David Hendry & Nicholas W.P. Fawcett, 2011. "Forecasting breaks and forecasting during breaks," Economics Series Working Papers 535, University of Oxford, Department of Economics.
  2. Hendry, David F. & Clements, Michael P., 2003. "Economic forecasting: some lessons from recent research," Economic Modelling, Elsevier, vol. 20(2), pages 301-329, March.
  3. Oliver Blaskowitz & Helmut Herwartz, 2009. "Adaptive forecasting of the EURIBOR swap term structure," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(7), pages 575-594.
  4. de Bondt, Gabe & Hahn, Elke, 2010. "Predicting recessions and recoveries in real time: The euro area-wide leading indicator (ALI)," Working Paper Series 1246, European Central Bank.
  5. Fichtner, Ferdinand & Rüffer, Rasmus & Schnatz, Bernd, 2009. "Leading indicators in a globalised world," Working Paper Series 1125, European Central Bank.

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