Econometric Modelling of UK Aggregate Investment: The Role of Profits and Uncertainty
Alan Carruth,
Andrew Dickerson and
Andrew Henley
Manchester School, 2000, vol. 68, issue 3, 276-300
Abstract:
This paper focuses on the determinants of aggregate investment spending in the UK for the industrial and commercial companies (ICC) sector. It complements recent work by Cuthbertson and Gasparro, who study an augmented Tobin’s q model of investment in the manufacturing sector. Important focal points of our analysis are a role for real profits (internal funds), which allow firms to combat liquidity constraints when access to capital markets is not perfect, and the impact of irreversibility and uncertainty in determining aggregate investment spending. Earlier work on manufacturing investment by Bean developed a dynamic error‐correction specification based on the flexible accelerator model. Following Cuthbertson and Gasparro we use multivariate cointegration techniques to discover a parsimonious dynamic model, which can explain the investment experience of the ICC sector in the 1980s and early 1990s. Our results show that a model based on investment and output alone does not cointegrate, and a short‐run dynamic model of these variables suffers from heteroscedasticity. This may be consistent with the idea that increased (uncontrolled for) uncertainty has led to increased volatility in investment. The possibility that movements in the real price of gold reflect uncertainty in financial and other traded commodity markets is explored. Investigation of this more general model indicates that real profits and the real price of gold can enhance the explanation of investment spending by the ICC sector.
Date: 2000
References: Add references at CitEc
Citations: View citations in EconPapers (14)
Downloads: (external link)
https://doi.org/10.1111/1467-9957.00194
Related works:
Working Paper: Econometric Modelling of UK Aggregate Investment: The Role of Profits and Uncertainty (1998) 
Working Paper: Econometric Modelling of UK Aggregate Investment: The Role of Profits and Uncertainty (1997)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:bla:manchs:v:68:y:2000:i:3:p:276-300
Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1463-6786
Access Statistics for this article
Manchester School is currently edited by Keith Blackburn
More articles in Manchester School from University of Manchester Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().