Investment under Demand Uncertainty and Capacity Constraints. An Empirical Application to Belgium

David de la Croix and Omar Licandro (licandro.omar@gmail.com)

No 1990010, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper evaluates the relevance of q theories under stochastic demand and capacity constraints by estimating an investment function for the Belgian economy. Under these theoretical conditions, we find that the investment rate depends on average q and on the expectations about the degree of capacity utilisation. The dynamics of the empirical model is derived without using any " time to build " or " delivery lags " assumptions. Our estimation stresses how important are the expectations about the degree of capacity utilisation in explaining investment.

Keywords: demand; investments; expectations (search for similar items in EconPapers)
Pages: 29
Date: 1990-07-01
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:1990010

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