Tobin's Q and Financial Policy

Bob Chirinko

No 2082, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Recent research in macroeconomics has emphasized the importance of linking the financial and real sectors and the need for working with optimizing models. Tobin’s Q model of investment would appear to provide a framework that can satisfy these two criteria. In contrast to the original presentation of the Q model, the formal development has not recognized that the firm actively participates in a number of financial markets; in this broader context, we show that Q is likely to be an uninformative and possibly misleading signal for investment expenditures . We then endeavor to turn this negative theoretical result to positive advantage in resolving a number of empirical problems with Q models, but the modifications dictated by the theory receive little support from the data.

Date: 1986-11
Note: EFG ME
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Citations: View citations in EconPapers (8)

Published as From Journal of Monetary Economics, Vol. 19, No. 1, pp. 69-87, (January 1987).

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