A Macro Function of Investment - Reconciling the 'Unsuccessful' Findings with Economic Rationality

This paper proposes a macro function of investment to capture the key determinants and explore the mechanism of the determination of aggregate investment. The long-established empirical findings in the field are that investment and output are strongly correlated while costs of capital have little correlation with investment. They are considered as unsuccessful because they seem contradictory to the economic rationality that investment is motivated by profit maximization. The model of this paper is able to reconcile the seemly unsuccessful empirical findings with economic rationality