Econometric Modelling of UK Aggregate Investment: The Role of Profits and Uncertainty
This paper focuses on the determinants of aggregate investment spending in the UK, for the industrial and commercial company (ICC) sector. Important focal points of our analysis are the role for real profits and the impact of irreversibility and uncertainty in determining aggregate investment spending. Early work on manufacturing investment by Bean (1981a) developed a data-based dynamic specification of considerable complexity. We use multivariate cointegration techniques to discover a parsimonious dynamic model, which can explain the 1980s and early 1990s investment experience of the ICC sector. Our results show that a model based on investment and output alone does not cointegrate, and a short run dynamic model of these variables suffers from heteroscedasticity. This may be consistent with the idea that increased (uncontrolled for) uncertainty has led to increased volatility in investment. Investigation of a more general model indicates that real profits can enhance the explanation of investment spending, and that a potential proxy for uncertainty is the real price of gold.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||Jun 1997|
|Date of revision:|
|Publication status:||Forthcoming in Manchester School, 2000|
|Contact details of provider:|| Postal: School of Economics, University of Kent, Canterbury, Kent, CT2 7NP|
Phone: +44 (0)1227 827497
Web page: http://www.kent.ac.uk/economics/
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mervyn A. King, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 21-35.
- Pindyck, Robert S. & Solimano, Andrés., 1993.
"Economic instability and aggregate investment,"
3552-93., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Pindyck, Robert S. & Solimano, Andres, 1993. "Economic instability and aggregate investment," Policy Research Working Paper Series 1148, The World Bank.
- Robert S. Pindyck & Andres Solimano, 1993. "Economic Instability and Aggregate Investment," NBER Working Papers 4380, National Bureau of Economic Research, Inc.
- Peter C.B. Phillips & Mico Loretan, 1989.
"Estimating Long Run Economic Equilibria,"
Cowles Foundation Discussion Papers
928, Cowles Foundation for Research in Economics, Yale University.
- Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
- Stephen Bond & Costas Meghir, 1994. "Dynamic Investment Models and the Firm's Financial Policy," Review of Economic Studies, Oxford University Press, vol. 61(2), pages 197-222.
- Hayashi, Fumio & Inoue, Tohru, 1991.
"The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms,"
Econometric Society, vol. 59(3), pages 731-53, May.
- Fumio Hayashi & Tohru Inoue, 1990. "The Relation Between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," NBER Working Papers 3326, National Bureau of Economic Research, Inc.
- Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
- Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
- Costrell, Robert M, 1983. "Profitability and Aggregate Investment under Demand Uncertainty," Economic Journal, Royal Economic Society, vol. 93(369), pages 166-81, March.
- Bean, Charles R, 1981. "An Econometric Model of Manufacturing Investment in the UK," Economic Journal, Royal Economic Society, vol. 91(361), pages 106-21, March.
- Engle, Robert F, 1983. "Estimates of the Variance of U.S. Inflation Based upon the ARCH Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(3), pages 286-301, August.
- Robert S. Chirinko, 1986.
"Tobin's Q and Financial Policy,"
NBER Working Papers
2082, National Bureau of Economic Research, Inc.
- Alan Carruth & Andy Dickerson & Andrew Henley, 1998.
"What Do We Know About Investment Under Uncertainty?,"
Studies in Economics
9804, School of Economics, University of Kent.
- Carruth, Alan & Dickerson, Andrew & Henley, Andrew, 2000. " What Do We Know about Investment under Uncertainty?," Journal of Economic Surveys, Wiley Blackwell, vol. 14(2), pages 119-53, April.
- Blundell, Richard & Bond, Stephen & Devereux, Michael & Schiantarelli, Fabio, 1992. "Investment and Tobin's Q: Evidence from company panel data," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 233-257.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
- Cuthbertson, K. & Gasparro, D., 1995. "Fixed investment decisions in UK manufacturing: The importance of Tobin's Q, output and debt," European Economic Review, Elsevier, vol. 39(5), pages 919-941, May.
- Engle, Robert F & Granger, Clive W J, 1987.
"Co-integration and Error Correction: Representation, Estimation, and Testing,"
Econometric Society, vol. 55(2), pages 251-76, March.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987.
"Financing Constraints and Corporate Investment,"
NBER Working Papers
2387, National Bureau of Economic Research, Inc.
- James M. Poterba & Lawrence H. Summers, 1981.
"Dividend Taxes, Corporate Investment, and "Q","
NBER Working Papers
0829, National Bureau of Economic Research, Inc.
- Ferderer, J Peter, 1993. "The Impact of Uncertainty on Aggregate Investment Spending: An Empirical Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 30-48, February.
- John Huizinga, 1993. "Inflation uncertainty, relative price uncertainty, and investment in U.S. manufacturing," Proceedings, Federal Reserve Bank of Cleveland, pages 521-557.
- Huizinga, John, 1993. "Inflation Uncertainty, Relative Price Uncertainty, and Investment in U.S. Manufacturing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 521-49, August.
- Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
- Goldberg, Linda S, 1993. "Exchange Rates and Investment in United States Industry," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 575-88, November.
- Oulton, Nicholas, 1981. "Aggregate Investment and Tobin's Q: The Evidence from Britain," Oxford Economic Papers, Oxford University Press, vol. 33(2), pages 177-202, July.
- Favero, Carlo A & Pesaran, M Hashem & Sharma, Sunil, 1994. "A Duration Model of Irreversible Oil Investment: Theory and Empirical Evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(S), pages S95-112, Suppl. De.
- Episcopos, Athanasios, 1995. "Evidence on the relationship between uncertainty and irreversible investment," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(1), pages 41-52.
- Bean, C R, 1981. "A New Approach to the Empirical Investigation of Investment Expenditures: A Comment," Economic Journal, Royal Economic Society, vol. 91(361), pages 104-05, March.
- Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 98(1), pages 85-106.
- Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December.
- Bond, Stephen R & Jenkinson, Tim, 1996. "The Assessment: Investment Performance and Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 12(2), pages 1-29, Summer.
When requesting a correction, please mention this item's handle: RePEc:ukc:ukcedp:9704. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tracey Girling)
If references are entirely missing, you can add them using this form.