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Empirical evidence on the Euler equation for investment in the US

Author

Listed:
  • Guido Ascari
  • Qazi Haque
  • Leandro M. Magnusson
  • Sophocles Mavroeidis

Abstract

The Euler equation model for investment with adjustment costs and variable capital utilization is estimated using aggregate US post-war data with econometric methods that are robust to weak instruments and exploit information in possible structural changes. Various alternative identification assumptions are considered, including external instruments, and instruments obtained from Dynamic Stochastic General Equilibrium models. Results show that the elasticity of capital utilization and investment adjustment cost parameters are very weakly identified. This is because investment appears to be unresponsive to changes in capital utilization and the real interest rate.

Suggested Citation

  • Guido Ascari & Qazi Haque & Leandro M. Magnusson & Sophocles Mavroeidis, 2021. "Empirical evidence on the Euler equation for investment in the US," CAMA Working Papers 2021-65, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2021-65
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-07/65_2021_Ascari_Haque_Magnusson_Mavroeidis%280%29.pdf
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    Cited by:

    1. Diana Gabrielyan & Lenno Uusküla, 2022. "Inflation Expectations And Consumption With Machine Learning," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 142, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    2. Dunbar, Kwamie & Owusu-Amoako, Johnson, 2021. "The impact of hedging on risk-averse agents’ output decisions," Economic Modelling, Elsevier, vol. 104(C).
    3. Ali Elminejad & Tomas Havranek & Zuzana Irsova, 2025. "Relative Risk Aversion: A Meta‐Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 39(5), pages 2315-2333, December.
    4. Carlos Velasco & Xuexin Wang, 2021. "Instrumental variable estimation via a continuum of instruments with an application to estimating the elasticity of intertemporal substitution in consumption," Working Papers 2024-09-06, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
    5. Guido Ascari & Qazi Haque & Leandro M. Magnusson & Sophocles Mavroeidis, 2024. "Empirical evidence on the Euler equation for investment in the US," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(4), pages 543-563, June.
    6. Jan Willem van den End & Paul Konietschke & Anna Samarina & Irina M Stanga, 2025. "Macroeconomic Reversal Rate in a Low Interest Rate Environment," International Journal of Central Banking, International Journal of Central Banking, vol. 21(3), pages 1-68, July.
    7. Malikane, Christopher, 2024. "Traditional output dynamics: A structural perspective," Journal of Macroeconomics, Elsevier, vol. 82(C).
    8. Emiliano A. Carlevaro & Qazi Haque & Leandro M. Magnusson, 2025. "Empirical evidence on the U.S. monetary-fiscal policy mix," School of Economics and Public Policy Working Papers 2025-05 Classification-E6, University of Adelaide, School of Economics and Public Policy.
    9. Nicholas Stern & Joseph Stiglitz & Charlotte Taylor, 2022. "The economics of immense risk, urgent action and radical change: towards new approaches to the economics of climate change," Journal of Economic Methodology, Taylor & Francis Journals, vol. 29(3), pages 181-216, July.
    10. Gantert, Konstantin, 2025. "Shopping Time and Frictional Goods Markets: Implications for the New-Keynesian Model," VfS Annual Conference 2025 (Cologne): Revival of Industrial Policy 325386, Verein für Socialpolitik / German Economic Association.
    11. Radek Šauer, 2022. "Corporate Taxation in Open Economies," CESifo Working Paper Series 9942, CESifo.
    12. Andreas Tryphonides, 2023. "Identifying Preferences when Households are Financially Constrained," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 521-546, December.
    13. Bofinger, Peter & Geißendörfer, Lisa & Haas, Thomas & Mayer, Fabian, 2021. "Discovering the True Schumpeter - New Insights into the Finance and Growth Nexus," CEPR Discussion Papers 16851, C.E.P.R. Discussion Papers.
    14. Colombo, Emilio & Furceri, Davide & Pizzuto, Pietro & Tirelli, Patrizio, 2024. "Public expenditure multipliers and informality," European Economic Review, Elsevier, vol. 164(C).
    15. Qazi Haque & Leandro M. Magnusson, 2023. "Identification Robust Empirical Evidence on the Open Economy IS‐Curve," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(2), pages 345-372, April.

    More about this item

    Keywords

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    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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