Dynamics of investment behaviour in Finland: aggregate and firm level evidence

In this paper we estimate reduced form investment equations for Finland using aggregate as well as firm-level panel data. We obtain significant estimates of the accelerator and user-cost effects on investment with both aggregate and firm level data, but these effects appear to be stronger at the aggregate level. Although the response of firms’ investment spending to shifts in monetary policy seems to be quantitatively nontrivial, it is surprisingly weak according to the results with firm-level data, and a considerable amount of heterogeneity also exists across firms in this respect. The firm-level estimates do not provide evidence for the existence of binding financing constraints in firms’ investment spending, at least among the sampled large firms, as we cannot obtain a significant coefficient estimate on the cash flow variable.