The Investment Function: Determinants Of Demand For Investment Goods
AbstractThis paper seeks to identify the major factors that affect the demand for investment goods in the United States. A review of Keynes’ theoretical literature on investment and previous empirical studies identified eight possible variables for testing. The testing procedure was stepwise linear regression. Hypothesized determinants of investment were added one by one to a regression equation to measure their ability to explain variance, and to test for the stability of their regression coefficients. Single stage or two stage least squares regression was used, as appropriate. The following, in order of importance, were found to be significant determinants of investment demand during the1960 – 2000 period: 1) crowd out problems caused by government deficits, 2) available depreciation allowances, 3) rates of growth of the economy, 4) changes in the prime interest rate, 5) growth in stock values, 6) exchange rate changes and 7) company profitability. The results explained 90% of the variation in investment demand. Regressions missing important explanatory variables had regression coefficients that varied widely with even small changes to the model. More complete models had more stable coefficients.
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Bibliographic InfoPaper provided by Rensselaer Polytechnic Institute, Department of Economics in its series Rensselaer Working Papers in Economics with number 0806.
Date of creation: Jul 2008
Date of revision:
Find related papers by JEL classification:
- E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
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- Ali, Sharafat, 2013. "A Cointegration Approach to Estimate Private Investment Demand Function of Pakistan," MPRA Paper 49595, University Library of Munich, Germany, revised 02 Sep 2113.
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