A nonlinear model for the investment function in Spain

Eva Senra
Authors registered in the RePEc Author Service: Antoni Espasa

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: This paper developpes a nonlinear single equation econometric model for the investment function in Spain, taking as starting point the equation estimated by Andrés et al. (1990). This original model, linear in its structure, incorporates oscillant dynamic relationships between the dependent and the explanatory variables. In the nonlinear model estimated in this paper, the response of the investment to production depends at any moment on the relative prices of energy, as an indicator of uncertainty into the future. This allows the investment to response with big oscillations to movements in production only in moments of great uncertainty. This alternative model introduces a nonlinear error-correction scheme, in which the adjustments to the long-run equilibrium path are affected by an exogenous variable. The model also improves the original adjustment, by reducing the residual variance in more than 30%.

Keywords: Transfer; function; Dynamic; response; function; Time-varying; parameter; models; Nonlinear; error; correction; models; Relative; prices; of; energy (search for similar items in EconPapers)
Date: 1998-05
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Persistent link: https://EconPapers.repec.org/RePEc:cte:wsrepe:4671

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