 Time-varying Investment Dynamics in the USAEconomics - The Open-Access, Open-Assessment Journal, 2024, vol. 18, issue 1, 18 Abstract: We study the time-varying effects of Tobin’s q and cash flow on investment dynamics in the USA using a vector autoregression model with drifting parameters and stochastic volatilities estimated via Bayesian methods. We find a significant variation over time of the response of investment to shocks in both variables. The time-varying sensitivity of investment to a shock in Tobin’s q (cash flow) decreased (increased) since the early 1960s through the early 1980s, increased (decreased) since the early 1980s through the early 2000s, and it has decreased (increased) importantly again since then. Thus, the time-varying response of investment to a shock to Tobin’s q has been almost the mirror image to the time-varying response of investment to a shock to cash flow. This implies that Tobin’s q and cash flow represent both complementary and alternative sources of information needed to understand short-run investment behavior. Keywords: investment dynamics; Tobin’s q; cash flow; time-varying parameters; vector autoregression (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bpj:econoa:v:18:y:2024:i:1:p:18:n:1035 Access Statistics for this article Economics - The Open-Access, Open-Assessment Journal is currently edited by Katharine Rockett More articles in Economics - The Open-Access, Open-Assessment Journal from De Gruyter |
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