Research
BPEA | 1972 No. 3An Alternative Model of Business Investment Spending
M. Ishaq Nadiri
M. Ishaq Nadiri
New York University and NBER
M. Ishaq Nadiri
New York University and NBER
1972, No. 3
DESPITE A VAST LITERATURE ON THE DETERMINANTS of investment behavior, questions about the way in which relative prices and output influence investment expenditures have not been satisfactorily resolved. In the “neoclassical” investment models, relative prices and output are commonly introduced as a composite variable, a procedure that does not allow for the possibility of separate and distinct effects of these two determinants on the level of investment expenditures. Yet separation of these effects is critical for designing effective monetary and fiscal policies to stabilize and stimulate the growth of the economy.