Explaining Weak Investment Growth After the Great Recession: A Macro-Panel Analysis

  • Ines Buono
  • Sara Formai
Part of the Financial and Monetary Policy Studies book series (FMPS, volume 46)


Business investment could be dampened by weak aggregate demand, the high cost of capital and macroeconomic uncertainty. The importance of each factor may vary both over time and across countries. In this chapter we use a panel of advanced economies to estimate a model of business investment based on the above mentioned factors. The main objective is to understand, through time-varying parameters estimations, how their relative importance has changed over time, in particular after the global financial crisis. The analysis reveals that all three factors matter for investment, and suggests a key role for countercyclical policies aiming at lowering interest rates, supporting aggregate demand, and restoring confidence on financial markets against unfavorable macroeconomic and financial developments, such as those that followed the global financial crisis and the debt crisis.


Investment Uncertainty Time-varying parameters 

JEL classification

E22 C23 


  1. Baker S, Bloom N, Davis N (2016) Measuring economic policy uncertainty. Q J Econ 131(4):1593–1636CrossRefGoogle Scholar
  2. Barkbu B, Berkmen SP, Lukyantsau P, Saksonovs S Schoelermann H (2015) Investment in the euro area: Why has it been weak? IMF working paper WP/15/32CrossRefGoogle Scholar
  3. Bekaert G, Hoerova M, Duca ML (2013) Risk, uncertainty and monetary policy. J Monetary Econ 60(7):771–788CrossRefGoogle Scholar
  4. Bernanke BS (1983) Irreversibility, uncertainty, and cyclical investment. Q J Econ 98(1):85–106CrossRefGoogle Scholar
  5. Bloom N (2009) The impact of uncertainty shocks. Econometrica 77(3):623–685CrossRefGoogle Scholar
  6. Buono I, Formai S (2016) The evolution of the anchoring of inflation expectations. Occasional papers 321, Bank of ItalyGoogle Scholar
  7. Buono I, Formai S (2018, forthcoming) Bank credit, liquidity and firm investments. Working paper series, Bank of ItalyGoogle Scholar
  8. Busetti F, Giordano C, Zevi G (2016) The drivers of italy’s investment slump during the double recession. Ital Econ J 2:143–165CrossRefGoogle Scholar
  9. Bussiere M, Ferrara L, Milovich J (2015) Explaining the recent slump of investment: the role of expected demand and uncertainty. Document de travail, 571Google Scholar
  10. Cingano F, Manaresi F, Sette E (2016) Does credit crunch investment down? new evidence on the real effects of the bank-lending channel. Rev Financ Stud 29(10)CrossRefGoogle Scholar
  11. Dixit AK, Pindyck RS (1994) Investment under uncertainty. Princeton University PressGoogle Scholar
  12. Ferrara L, Lhuissier S, Tripier F (2018) The challenges of rising uncertainty for macroeconomic policy. International macroeconomics in the wake of the global financial crisis. Springer, BerlinGoogle Scholar
  13. Gennaioli N, Ma Y, Shleifer A (2016) Expectations and investment. NBER Macroecon Annu 30:379–442CrossRefGoogle Scholar
  14. Gilchrist S, Sim JW, Zakrajek E (2014) Uncertainty, financial frictions, and investment dynamics, NBER working papersGoogle Scholar
  15. Giraitis L, Kapetanios G, Yates T (2014) Inference on stochastic time-varying coefficient models. J Econ 179:46–65CrossRefGoogle Scholar
  16. Guiso L, Parigi G (1999) Investment and demand uncertainty. Q J Econ 114(1):185–227CrossRefGoogle Scholar
  17. Jorgenson DW, Siebert CD (1968) A comparison of alternative theories of corporate investment behavior. Am Econ Rev 58(4):681–712Google Scholar
  18. IMF (2015) Private investment: Whats the holdup? World Econ Outlook 4:71–113Google Scholar
  19. Lewis C, Pain N, Strasky J, Menkyna F (2014) Investment gaps after the crisis, OECD economics department working papers, No. 1168Google Scholar
  20. Meinin P, Roehe O (2017) On measuring uncertainty and its impact on investment: cross-country evidence from the euro area. Eur Econ Rev 92:161–179CrossRefGoogle Scholar
  21. Pesaran M (2004) General diagnostic tests for cross section dependence in panels, Cambridge Working Papers in Economics 0435, Faculty of Economics, University of CambridgeGoogle Scholar
  22. Riggi M, Venditti F (2015) Failing to forecast low inflation and phillips curve instability: a euro-area perspective. Int Financ 18:47–68CrossRefGoogle Scholar

Copyright information

© Springer International Publishing AG, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Bank of ItalyDirectorate General for Economics, Statistics and Research, International Relations and Economics DirectorateRomeItaly
  2. 2.Bank of ItalyDirectorate General for Economics, Statistics and Research, Structural Economic AnalysisRomeItaly

Personalised recommendations