Investment without Q

Vito D. Gala, Joao F. Gomes and Tong Liu

Journal of Monetary Economics, 2020, vol. 116, issue C, 266-282

Abstract: This paper proposes an alternative to standard investment-Q regressions. Policy functions summarize the key predictions of any dynamic investment model, are easy to estimate and, unlike Tobin’s Q, account for a large fraction of the variation in corporate investment. As such policy functions are much better suited to evaluate and estimate dynamic investment models. Using this superior characterization of firm investment behavior we use indirect inference methods to estimate deep parameters of a structural model of investment and show that investment adjustment cost parameters are generally better identified from estimated policy function coefficients.

Keywords: Investment; Policy functions; Indirect inference (search for similar items in EconPapers)
JEL-codes: C14 C52 E22 G31 G32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:116:y:2020:i:c:p:266-282

DOI: 10.1016/j.jmoneco.2019.10.014

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