The Relationship between Actual Investment and Survey-based Expectations

Paul Brennan and Tania Milavec
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Paul Brennan: Reserve Bank of Australia
Tania Milavec: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: Empirical investment models have generally provided a poor explanation of trends in business investment. One reason for this poor performance has been the failure to satisfactorily incorporate expectations. In this paper the usefulness of survey-based expectations is explored. Although these expectations are used extensively in forecasting business investment there has been little study of the systematic relationship between the expectations and actual outcomes. It is found that surprises in short-term interest rates and cyclical factors are the most important quantitative determinants of the relationship between survey expectations and actual outcomes for both construction and equipment investment.

Date: 1988-12
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp8810

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