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Explaining the recent slump in investment: the role of expected demand and uncertainty

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  • Matthieu Bussière
  • Laurent Ferrara
  • Juliana Milovich

Abstract

The weakness in business investment in several advanced economies since the global financial crisis has prompted debate over the main drivers behind this trend and the possible policy responses, if any. This Rue de la Banque summarises an empirical investigation of the main determinants of business investment since 1995 for a panel of twenty-two advanced economies. In the short term, while measures of capital cost seem to play a modest role, low expected demand explains most of the weakness in business investment, with uncertainty also making a contribution. However, systematically over-optimistic business investment.

Suggested Citation

  • Matthieu Bussière & Laurent Ferrara & Juliana Milovich, 2017. "Explaining the recent slump in investment: the role of expected demand and uncertainty," Rue de la Banque, Banque de France, issue 44, may..
  • Handle: RePEc:bfr:rueban:2017:44
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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