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What explains the lagged-investment effect?

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  • Eberly, Janice
  • Rebelo, Sergio
  • Vincent, Nicolas

Abstract

The best predictor of current investment at the firm level is lagged investment. This lagged-investment effect is empirically more important than the cash-flow and Q effects combined. We show that the specification of investment adjustment costs proposed by Christiano et al. (2005) predicts the presence of a lagged-investment effect and that a generalized version of their model is consistent with the behavior of firm-level data from Compustat.

Suggested Citation

  • Eberly, Janice & Rebelo, Sergio & Vincent, Nicolas, 2012. "What explains the lagged-investment effect?," Journal of Monetary Economics, Elsevier, vol. 59(4), pages 370-380.
  • Handle: RePEc:eee:moneco:v:59:y:2012:i:4:p:370-380
    DOI: 10.1016/j.jmoneco.2012.05.002
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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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