Determinants of U.S. Business Investment

June 15, 2018

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Format: Chicago

Emanuel Kopp. Determinants of U.S. Business Investment, (USA: International Monetary Fund, 2018) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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 supportive financial conditions, improved sentiment, rising equity valuations, and strong labor markets—factors established in supporting business investment. Applying accelerator models and Bayesian Model Averaging, this paper discusses the extent to which U.S. business investment has been unusual. Results suggest that cautious expectations of future aggregate demand growth explain most of the weakness in investment, and that the oil and gas sector accounts for a considerable portion of the investment slump. Consequently, the behavior of U.S. business investment in recent years has not been unusual once these factors are taken into account. Also, there is very little evidence for uncertainty holding back investment, or that firms’ financial measures "crowded out" capital expenditure.

Subject: Bank credit, Financial crises, Financial institutions, Global financial crisis of 2008-2009, Money, National accounts, Oil prices, Prices, Private investment, Stocks

Keywords: Accelerator model, Accelerator models, Bank credit, Bayesian Model Averaging, Business investment, Consumption deflator, Equipment investment, Firm, Global, Global financial crisis of 2008-2009, Growth outcome, Investment activity, Investment gap, Investment growth, Oil prices, Private fixed investment, Private investment, Stocks, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/139
Stock No:

WPIEA2018139
ISBN:

9781484361504
ISSN:

1018-5941

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