Asymmetries in the relation between investment and output

Hamid Baghestani and Tracy Mott

Journal of Post Keynesian Economics, 2014, vol. 37, issue 2, 357-365

Abstract: This paper seeks to explore how the relation of business fixed investment and gross domestic product (GDP) experiences “accelerator” and “multiplier” feedbacks. On the basis of error-correction model estimates, we find that in different regions of economic performance these relationships vary in an asymmetric fashion. When the economy is operating below its estimated potential, we find that the accelerator mechanism is the main linkage, as investment responds to changes in GDP. As we get to the estimated existing limit of potential output, the investment multiplier starts to become the driver of output, as “animal spirits” seem to free investment from being bound by current output levels.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:mes:postke:v:37:y:2014:i:2:p:357-365

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DOI: 10.2753/PKE0160-3477370208

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