What Explains the Lagged Investment Effect?

37 Pages Posted: 21 Mar 2011

See all articles by Janice C. Eberly

Janice C. Eberly

Northwestern University - Kellogg School of Management

Sergio T. Rebelo

Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Nicolas Vincent

HEC Montreal - Institute of Applied Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2011

Abstract

The best predictor of current investment at the firm level is lagged investment. This lagged-investment effect is empirically more important than the cash-flow and Q effects combined. We show that the specification of investment adjustment costs proposed by Christiano, Eichenbaum and Evans (2005) predicts the presence of a lagged-investment effect and that a generalized version of their model is consistent with the behavior of firm-level data from Compustat.

Suggested Citation

Eberly, Janice C. and Tavares Rebelo, Sergio and Vincent, Nicolas, What Explains the Lagged Investment Effect? (March 2011). NBER Working Paper No. w16889. Available at SSRN: https://ssrn.com/abstract=1789470

Janice C. Eberly (Contact Author)

Northwestern University - Kellogg School of Management ( email )

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Sergio Tavares Rebelo

Northwestern University - Kellogg School of Management ( email )

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Evanston, IL 60208
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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Nicolas Vincent

HEC Montreal - Institute of Applied Economics ( email )

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Montréal, Quebec H3T 2A7
Canada

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