A Note on Aggregate Investment in Australia
Warwick McKibbin () and
Eric S Siegloff
The Economic Record, 1988, vol. 64, issue 186, 209-15
The purpose of this paper is to explore the relevance of Tobin's q theory of investment in explaining aggregate investment in Australia over the period from December 1966 to December 1986. Using standard capital stock data, the q theory performs poorly. However, the cost of adjustment model implies that the conventional capital stock data need to be revised to allow for these adjustment costs. Once this is done, it is found that the q theory explains a statistically significant (although small) proportion of the movements in aggregate investment. The residual behavior of investment is explained well by an accelerator model. Copyright 1988 by The Economic Society of Australia.
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