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International Monetary Fund. European Dept.

and investment spending . A log-linear form of a standard firm investment model, as in ( Budina et al., 2015 ; Kalemli-Özcan et al., 2015, Damijan, 2014 ), is applied to annual observations on a sample of firms from each country. In addition, potential differences in investment rates related to firm size are also modeled, by running separate regressions with sub-samples based on firm size (large, medium, and small and micro). The econometric approach has the following specification: d l n ( I i , t ) = α

Ms. Catherine A Pattillo
Panel data on Ghanaian manufacturing firms are used to test predictions from models of irreversible investment under uncertainty. Information on the entrepreneur’s subjective probability distribution over future demand for the firm’s products is used to construct the expected variance of demand, which is used as a measure of uncertainty. Empirical results support the prediction that firms wait to invest until the marginal revenue product of capital reaches a firm-specific hurdle level. Moreover, higher uncertainty raises the hurdle level that triggers investment, and uncertainty has a negative effect on investment levels that is greater for firms with more irreversible investment.
Mr. Arne L Bigsten
This paper examines dynamic patterns of investment in Cameroon, Ghana, Kenya, Zambia and Zimbabwe, assessing the consistency of those patterns with different adjustment cost structures. Using survey data on manufactured firms, we document the importance of zero investment episodes and lumpy investment. The proportion of firms experiencing large investment spikes is significant in explaining aggregate manufacturing investment. Taken together, evidence from descriptive statistics, average investment regressions modeling the response to capital imbalance, and transition data analysis indicate that irreversibility is an important factor considered by firms when making investment plans. The picture is not unanimous however, and some explanations for the mixed results are proposed.
International Monetary Fund. European Dept.

. Using firm-level panel data on listed non-financial firms, investment models are estimated (Appendix I). 4 Main regression results ( Appendix Table 1 Model 1) 10. Demand for investment is considered to be positively associated with sales levels and profitability and negatively with the cost of capital . A firm’s specific demand is captured by its Sales Gap (defined as a firm’s de-trended sales). The coefficient on this variable is positive and statistically significant, validating the narrative of recent investment developments: in the aftermath of the

Ms. Catherine A Pattillo

uncertainty on investment, the most appropriate model to consider would include parameterization of the degree of reversibility. However, since the data set does not include adequate information on sale of capital, it would not be possible to test the predictions of a partial reversibility model along the lines of Abel and Eberly (1996) . Therefore, to fix ideas, we will consider a model where investment is completely irreversible. Appendix 1 presents a firm investment model, drawing on Bertola (1988) . The key features are: (1) investment is irreversible; i.e. gross

Mr. Arne L Bigsten

component. Although they have not been specifically applied to a firm investment model, a standard two-sided (S, s) model would imply that most of the time, the firm allows its marginal product of capital (MPK) to fluctuate in response to exogenous shocks and does not invest. Only when the MPK reaches a trigger would the firm invest in a “lump” in order to bring the MPK to a certain return point. It is clear that the three adjustment cost structures we have discussed—symmetric quadratic, structures with a kink at zero, and increasing returns in the adjustment cost

International Monetary Fund. European Dept.
This Selected Issues paper focuses on the housing and business cycles in the United Kingdom. The UK housing cycle is highly volatile as a result of tight housing supply constraints and fluctuations in credit conditions. Housing supply-side constraints can be alleviated through changes to the planning system and tax reforms. The new National Planning Policy Framework introduced by the government is creating the incentives for local councils to increase available land for construction. There are early signs that this change in the planning system is contributing to the recovery in housing construction. Targeted macroprudential policies could address financial stability risks stemming from the housing market. Although mortgage credit as a share of gross domestic product has been declining in the current housing recovery, there are signs that there is a build-up of financial risks: loan-to-income ratios are increasing in London and among first time buyers.
International Monetary Fund. European Dept.
This paper focuses on the following key issues of the Slovenian economy: export competitiveness, corporate financial health and investment, European Central Bank (ECB) quantitative easing, and financial sector development issues and prospects. Slovenia’s exports have been the main contributor to GDP growth in recent years. In particular, by 2015 exports of goods and services had increased by 20 percentage points of GDP compared to their postcrisis low in 2009. Preceding the global economic slump in 2008, bank credit in Slovenia fueled corporate investment. The past few years have witnessed substantial monetary easing by the ECB. With inflation running well below target, the ECB has been pursuing unconventional monetary policy-easing actions.