This 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.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.