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Investment Spending in Australia: Further Study and Interpretation

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  • Heijdra, Ben J
  • Scarth, William M

Abstract

Recent work in macro theory suggests that aggregate "demand" policies have direct supply-side effects in the short run, if Robert E. Lucas's standard specification of the nonlinear adjustment costs for capital is generalized. In this paper, the authors estimate an investment equation (involving James Tobin's valuation ratio and Australian data) which nests three hypotheses: Lucas's standard specification of adjustment costs, a simple generalization which permits labor to be involved in the installation of capital, and a model which allows for liquidity constraints. The results support the suggested alternative formulation of the q-theory. Copyright 1990 by The Economic Society of Australia.

Suggested Citation

  • Heijdra, Ben J & Scarth, William M, 1990. "Investment Spending in Australia: Further Study and Interpretation," The Economic Record, The Economic Society of Australia, vol. 66(195), pages 295-307, December.
  • Handle: RePEc:bla:ecorec:v:66:y:1990:i:195:p:295-307
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    Cited by:

    1. Myatt, Anthony & Scarth, William M., 1995. "Can fiscal spending be contractionary when interest rates have supply-side effects?," Journal of Macroeconomics, Elsevier, vol. 17(2), pages 289-301.

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