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What explains the lagged-investment effect?

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

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.

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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 59 (2012)
Issue (Month): 4 ()
Pages: 370-380

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Handle: RePEc:eee:moneco:v:59:y:2012:i:4:p:370-380
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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  20. Timothy Erickson & Toni M. Whited, 2000. "Measurement Error and the Relationship between Investment and q," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1027-1057, October.
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