The Decline in Corporate Investment

Vito Gala, Hongxun Ruan and Joao Gomes
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Vito Gala: University of Pennsylvania
Hongxun Ruan: Wharton School
Joao Gomes: University of Pennsylvania

No 269, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: We use a dynamic stochastic model of firm investment to investigate quantitatively the causes behind the ongoing decline in corporate investment. Our analysis focuses on three of the most commonly proposed explanations: (i) a secular decline in productivity growth; (ii) a tightening of financial constraints in the period surrounding the Great Depression; and (iii) the recent increase in policy uncertainty. We find that all three factors are important to account for the sharp decline in investment during the Great Recession. However only slow productivity growth can best account for the long term decline in investment.

Date: 2018
New Economics Papers: this item is included in nep-dge and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:269

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