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Investment in Swedish Manufacturing: Analysis and Forecasts

Bengt Assarsson (), Claes Berg () and Per Jansson ()
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Claes Berg: Monetary Policy Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 95, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: This paper uses a neoclassical investment model extended with installation costs for capital, agency costs for investment financing, and the possibility of the firm being output constrained as a framework for an empirical analysis of investment behaviour in the Swedish manufacturing industry. The theory is implemented within a multivariate error-correction approach on data covering the time period 1951 to 1995, and we gain the following main results: (1) Tobin’s average Q is not the sole determinant of investment, neither in the short nor in the long run, and other variables like real output and capital gearing also affect investment activity; (2) the out-of-sample forecasts of the model track the evolution of actual investment growth quite impressively, especially at short- and medium-term horizons (1-2 years); (3) a relative equity-price variable is shown to constitute a good approximation of average Q, both for empirical modelling in general and forecasting in particular.

Keywords: Forecasting investment; Multivariate error-correction model; Neoclassical investment theory; Tobin's Q (search for similar items in EconPapers)
JEL-codes: C32 E22 E27 (search for similar items in EconPapers)
Pages: 31 pages
Date: 1999-10-01
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Published in Empirical Economics, 2004, pages 261-280.

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