Investment Performance, Capital-Widening and Economic Policy

Driver, Ciaran; Karakitsos, Elias; Bunyard, Mark

Abstract

Abstract: Fixed investment as a share of GDP has declined over a long period in many G10 countries. The aim of the paper is to provide a theoretical framework for explaining this. The model emphasises the negative effect on investment of uncertainty about the effects of a policy response to an output gap. When government contracts demand to close an output gap that is the result of an initial decline in fixed investment, it tends to exert a cumulative depressive effect on capacity and growth. Since this involves a dynamic process the mechanisms at work are illustrated through a theoretical simulation approach.

Citation

Driver, C., Karakitsos, E., & Bunyard, M. (1999). Investment Performance, Capital-Widening and Economic Policy. Economic Issues, 4(1), 93-100

• Journal Article Type: Article
• Publication Date: Jan 1, 1999
• Deposit Date: Aug 15, 2015
• Journal: Economic Issues
• Electronic ISSN: 1363-7029
• Publisher: Economic Issues Education Trust
• Peer Reviewed: Peer Reviewed
• Volume: 4
• Issue: 1
• Pages: 93-100
• Publisher URL: http://www.economicissues.org.uk/Vol4.html#a7