What question did this study set out to answer?

Evaluate the theoretical foundations, empirical performance, and forecasting accuracy of aggregate business fixed investment models during the economic turbulence of the 1970s.

January 1, 1979Brookings Papers on Economic ActivityOpen Access

Investment in the 1970s: Theory, Performance, and Prediction

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Authors

PCPeter K. ClarkCouncil of Economic Advisers AGAlan GreenspanFederal Reserve SGStephen M. GoldfeldUniversity of British Columbia

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Implication

Econometric analysis reveals shifting performance among macroeconomic investment models in the United States, indicating substantial challenges in predicting capital spending.

Key Points

Evaluate the theoretical foundations, empirical performance, and forecasting accuracy of aggregate business fixed investment models during the economic turbulence of the 1970s.
Analyzed quarterly aggregate time-series data of United States business fixed investment across equipment and nonresidential structures.
Tested five major investment specifications: accelerator, neoclassical, cash flow, Bischoff putty-clay, and generalized accelerator models.
Evaluated post-sample forecast errors and parameter stability across business cycle turning points.
Output-driven accelerator models consistently achieve superior empirical fit and forecasting accuracy relative to neoclassical cost-of-capital formulations.
Capital goods spending during the 1970s exhibited unexplained sluggishness that standard econometric formulations failed to anticipate accurately.
Cost of capital and tax policy variables demonstrated weaker explanatory power for aggregate investment fluctuations than changes in aggregate output.

Cite This Study

Clark et al. (1979) studied this question.

synapsesocial.com/papers/6a17cf054f2b3115b0130989 https://doi.org/10.2307/2534305

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Implication

Econometric analysis reveals shifting performance among macroeconomic investment models in the United States, indicating substantial challenges in predicting capital spending.

Investment in the 1970s: Theory, Performance, and Prediction

Discussion

Member takes

Implication

Key Points

Cite This Study

Investment in the 1970s: Theory, Performance, and Prediction

Discussion

Member takes

Implication

Key Points

Cite This Study

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