Revisiting investment and its determinants through threshold analysis

Tsimis, Achilles and Tsoulfidis, Lefteris (2024) Revisiting investment and its determinants through threshold analysis. ACTA OECONOMICA, 74 (1). pp. 97-120. ISSN 0001-6373

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Abstract

Abstract Since the time of classical economists, investment decisions hold centre stage in economic theory. In this article, we integrate classical economists' perspectives on the determinants of investment with the Keynesian theory of effective demand. For this purpose, we employ variables to capture the effects of profitability, the state of demand, and the financial and risk conditions using time series data from 17 major OECD economies spanning the 1960–2017 period. Two are the salient features of our article: The first is the use as profitability variables, the marginal efficiency of capital or the incremental rate of return, and the second is the use of regime changes and respective threshold values for these two key variables. The econometric results show that the profitability variables are decisive in shaping investment decisions and designating phase changes.

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