Financial shocks and the relative dynamics of tangible and intangible investment: Evidence from the euro area

Johannes Gareis and Eric Mayer

No 39/2020, Discussion Papers from Deutsche Bundesbank

Abstract: We develop an extended real business cycle (RBC) model with financially con-strained firms and non-pledgeable intangible capital. Based on a model-consistentseries for firms' borrowing conditions, we find, within a structural vector autoregres-sion (SVAR) framework, that, in response to an adverse financial shock, tangible in-vestment falls more than intangible investment. This positive co-movement betweentangible and intangible investment as well as the relative resilience of intangibleinvestment pose a challenge for the theoretical model. We show that investment-specific adjustment costs help in reconciling the model with the observed empiricalevidence. The estimation of the theoretical model using a Bayesian limited infor-mation approach yields support for the presence of much larger adjustment costsfor intangible investment than for tangible investment.

Keywords: tangible investment; intangible investment; financial shocks; euro area (search for similar items in EconPapers)
JEL-codes: C32 E32 E44 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-dge, nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:392020

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