Year: 2015
Author: Dreger, Christian, Reimers, Hans-Eggert
Vierteljahrshefte zur Wirtschaftsforschung, Vol. 84 (2015), Iss. 4 : pp. 145–156
Abstract
This paper explores the long-term relationship between public and private investment in the euro area. A stock-flow approach is proposed to control for the integration properties of the variables. Panel econometric techniques including international spillovers are employed. Private and public capital stocks are cointegrated. However, the residuals from the stock equilibrium are not (trend) stationary, but rather include a random walk component. Nonetheless, they can be exploited to improve the model for private investment flows. In fact, standard models that include private investment flows, GDP, and the real interest rate are only valid if the deviations from the stock equilibrium are considered. The corresponding error correction equation is well behaved, as deviations from the stock relationship are crucial for explaining the changes in private investment. Thus, the lack of public investment may have been restricting private investment and GDP growth in the euro area.
Journal Article Details
Publisher Name: Global Science Press
Language: German
DOI: https://doi.org/10.3790/vjh.84.4.145
Vierteljahrshefte zur Wirtschaftsforschung, Vol. 84 (2015), Iss. 4 : pp. 145–156
Published online: 2015-12
AMS Subject Headings: Duncker & Humblot, Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 12
Keywords: Public and private investment capital stocks fiscal austerity C23 E22 E62