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A nonlinear model for the investment function in Spain

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  • Senra, Eva
  • Espasa, Antoni

Abstract

This paper developpes a nonlinear single equation econometric model for the investment function in Spain, taking as starting point the equation estimated by Andrés et al. (1990). This original model, linear in its structure, incorporates oscillant dynamic relationships between the dependent and the explanatory variables. In the nonlinear model estimated in this paper, the response of the investment to production depends at any moment on the relative prices of energy, as an indicator of uncertainty into the future. This allows the investment to response with big oscillations to movements in production only in moments of great uncertainty. This alternative model introduces a nonlinear error-correction scheme, in which the adjustments to the long-run equilibrium path are affected by an exogenous variable. The model also improves the original adjustment, by reducing the residual variance in more than 30%.

Suggested Citation

  • Senra, Eva & Espasa, Antoni, 1998. "A nonlinear model for the investment function in Spain," DES - Working Papers. Statistics and Econometrics. WS 4671, Universidad Carlos III de Madrid. Departamento de Estadística.
    • Handle: RePEc:cte:wsrepe:4671
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    References listed on IDEAS

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    1. Perron, P, 1993. "Erratum [The Great Crash, the Oil Price Shock and the Unit Root Hypothesis]," Econometrica, Econometric Society, vol. 61(1), pages 248-249, January.
    2. Granger, C W J & Lee, T H, 1989. "Investigation of Production, Sales and Inventory Relationships Using Multicointegration and Non-symmetric Error Correction Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages 145-159, Supplemen.
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