Aggregate investment dynamics when firms face fixed investment cost and capital market imperfections

Christian Bayer

Discussion Papers in Economics from University of Dortmund, Department of Economics

Abstract: In this paper a model of aggregate investment is derived, which incorporates fixed investment costs and capital market imperfections on the micro-level. Aggregate investment reacts nonlinearly with respect to aggregate shocks to productivity and liquidity of firms. Employing nonparamatric kernel estimation methods to analyse a sample of annual account data of UK companies, these nonlinearities also show up empirically. Furthermore a difference in strength between the long- and the short-run effect of liquidity on investment is found, which is inconsistent with models that solely explain the empirical correlation of investment and liquidity as the result of some long-run relationship like liquidity-dependent costs-of-capital or principal-agent problems.

Pages: 29 pages
Date: 2001-07
New Economics Papers: this item is included in nep-bec, nep-fmk and nep-mac
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Related works:
Working Paper: Aggregate investment dynamics when firms face fixed investment cost and capital market imperfections (2004)
Working Paper: Aggregate investment dynamics when firms face fixed investment cost and capital market imperfections (2004)
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