We propose a stochastic control model to study corporate investment with generalized investment frictions, including investment lags and various of adjustment costs. We find that the dominance of the ``good news principle'' or ``bad news principle'' is determined by the joint effect of...

This paper analyzes the effects of changes in government expenditures on both a domestically produced and an imported good in an open economy based on intertemporal optimizing behavior. The dynamic adjustment is characterized in detail and the critical role played by the accumulating capital...

In a world of integrated capital markets, the price of credit — which I measure by short-term expected real interest rates — is determined to equate the world aggregate of investment demand to the world aggregate of desired national saving. I implement this approach empirically by...

We derive from a model of investment with multiple capital goods a one-to-one relation between the growth rate of the capital aggregate and the stock market-based Q. We estimate the growth-Q relation using a panel of Japanese manufacturing firms taking into account the endogeneity of Q....

Most of the empirical work on investment is based on the existence of a relation between investment and the expected present val of marginal profits.Thus, in this paper we compute such a present value series, under various assumptions about demand and technology and examine its relation to...

We present a simple framework that incorporates a role for "interest rate spreads" in models of investment fluctuations. Formally, we develop a simple model of investment and financial contracting under asymmetric information that can he used to generate an Euler equation describing firms'...

This research contributes to the theory of cost-reducing R&D investments by offering a tractable three-stage non-cooperative Cournot duopoly game in which R&D-investing firms choose whether to disclose R&D-related information to the rival. Though in a noncooperative context firms have no...

This paper surveys the neoclassical theory of aggregate investment and its criticisms. We identify four main strands in neoclassical investment theory: (i) the traditional Wicksellian model; (ii) the Fisherian "array-of-opportunities" approach; (iii) the Jorgensonian model; (iv) the now...

Much of James Tobin's professional life has been devoted to studying the interrelationship between the goods and financial markets. His general equilibrium approaches stresses the interaction of the demand for financial assets with the decision to accumulate productive capital. His emphasis on...

The optimal timing of real investment is studied under the assumptions that investment is irreversible and that new information about returns is arriving over time. Investment should be undertaken in this case only when the costs of deferring the project exceed the expected value of information...

We study the effects of aggregate and idiosyncratic uncertainty on the entry of firms, total investment, and prices in a competitive industry with irreversible investment. We first use standard dynamic programming methods to determine firms' entry decisions, and we describe the resulting...

This paper presents a simple two-country model of the role of taxation in capital flows between developed countries ("The North") and developing countries ("The South"). The Southern country is assumed to be unable to enforce a tax on its residents' foreign-source income, and the Northern...

Our two related goals in this paper are the following: Firstly and mainly, we want to examine the effects of major changes in modelling strategy and econometric methodology, over the past twenty years, on estimation of firm-level investment equations using panel data. Secondly, we try to assess...

Suppose that a firm receives a cash windfall which does not change its investment opportunity set, or equivalently its marginal Tobin's Q. What will this firm do with the money? We provide empirical answers to this question using a sample of firms with such windfalls in the form of a won or...

The 90s have witnessed a revival in economists' interest and hope of explaining" aggregate and microeconomic investment behavior. New theories, better econometric" procedures, and more detailed panel data sets are behind this movement. Much of the progress" has occurred at the level of...

This paper revisits the canonical assumption of nonconvex capital adjustment costs in lumpy investment models as in Khan and Thomas (2008), which are assumed to follow a uniform distribution from zero to an upper bound, without distinguishing between the mean and the variance of the...

Capital market assumptions (CMAs), which are long-term risk and return forecasts for asset classes, are important pillars of the investment industry. However, applying them reliably in portfolio construction has been (and still is) a challenge in the industry. Despite the difficulties, this...

Recent research in macroeconomics has emphasized the importance of linking the financial and real sectors and the need for working with optimizing models. Tobinâ€TMs Q model of investment would appear to provide a framework that can satisfy these two criteria. In contrast to the original...

A recent literature suggests that because investment expenditures are irreversible and can be delayed, they may be highly sensitive to uncertainty. We briefly summarize the theory, stressing its empirical implications. We then use cross-section and time-series data for a set of developing and...

This study attempts to asses firms' financial conditions to explain why they use myopic R&D cuts. Contrary to prior literature, this study shows that the current financial indicators of firms are also significant determinants of R&D myopic management along with stock market. Financial indicators...

Macroeconomic and sector-specific shocks exert differential effects on investment in disaggregate sectoral data. The response to macroeconomic shocks is hump-shaped, just as in aggregate data. The effects of sectoral innovations decrease monotonically. A calibrated model of investment with...

Macroeconomic and sector-specific shocks exert differential effects on investment in disaggregate sectoral data. The response to macroeconomic shocks is hump-shaped, just as in aggregate data. The effects of sectoral innovations decrease monotonically. A calibrated model of investment with...

Leading production-based asset pricing models predict that the sources of fluctuations in real investment and (scaled) stock prices are the same. Yet, extant empirical findings point to a large difference in these sources. We revisit this empirical question by deriving a present-value relation...

The paper builds up a macro function of investment to capture various key determinants and explore the intricate determination mechanism of aggregate investment. It explicates the basic trend determinant of investment, locates the cause of investment volatility and identifies the magnifier of...

Endowment funds and similar institutions aim to generate a benefit stream of unlimited duration on the basis of an initially donated capital. Towards this purpose, responsible trustees need to design a spending policy as well as an investment policy. A combined spending and investment policy is...

The paper concerns the study of equilibrium points, or steady states, of economic systems arising in modelling optimal investment with vintage capital, namely, systems where all key variables (capitals, investments, prices) are indexed not only by time τ but also by age s. Capital accumulation...

U.S. business investment has taken a serious toll during the global financial crisis and also in the recovery phase investment did not pick up as expected. What is surprising is that the alleged investment slowdown happened at a time of record corporate profits and retained earnings, highly...

This paper looks at the effect of demand shocks on the investment share of the economy. Using panel data on 20 OECD countries, we show that the rate of growth of autonomous demand (exports, public spending and housing investment) is positively correlated with subsequent values of the share of...

U.S. business investment has taken a serious toll during the global financial crisis and also in the recovery phase investment did not pick up as expected. What is surprising is that the alleged investment slowdown happened at a time of record corporate profits and retained earnings, highly...

This paper surveys the neoclassical theory of aggregate investment and its criticisms. We distinguish four main formulations of this theory: the traditional 'Wicksellian' investment function; the Fisherian 'array-of-opportunities' approach (as Witte Jr. called it); the Jorgensonian model; the...

Since the early 1980s, equity Tobin's Q has experienced a secular increase in the US, as equity wealth and corporate physical capital have followed divergent trajectories. During the same period, labor productivity and wages have significantly decoupled, leading to a decline in the U.S....

This paper extends the Q-theory of investment to capital goods with arbitrary efficiency profiles. Under the assumption of geometric economic depreciation employed by the traditional Q-theory, a firm's replacement cost of assets-in-place is independent of their vintage composition and can be...