宏觀經(jīng)濟(jì)學(xué)英文課件：CHAP18 Investment

1、S E V E N T H E D I T I O NModified for EC 204 by Bob Murphyleading theories to explain each type of investmentwhy investment is negatively related to the interest ratethings that shift the investment functionwhy investment rises during booms and falls during recessions3CHAPTER 18 InvestmentThree ty

2、pes of investmentBusiness fixed investment:businesses spending on equipment and structures for use in production.Residential investment:purchases of new housing units (either by occupants or landlords).Inventory investment:the value of the change in inventories of finished goods, materials and suppl

3、ies, and work in progress.U.S. Investment and its components, 1970-2009Billions of 2005 dollarsTotal investmentBusiness fixed investmentResidential investmentChange in inventories5CHAPTER 18 InvestmentUnderstanding business fixed investmentThe standard model of business fixed investment: the neoclas

4、sical model of investmentShows how investment depends on:MPKinterest ratetax rules affecting firms6CHAPTER 18 InvestmentTwo types of firmsFor simplicity, assume two types of firms:1. Production firms rent the capital they use to produce goods and services.2. Rental firms own capital, rent it to prod

5、uction firms.In this context, “investment” is the rental firms spending on new capital goods.7CHAPTER 18 InvestmentThe capital rental marketProduction firms must decide how much capital to rent.Recall from Chap. 3:Competitive firms rent capital to the point where MPK = R/P. Kcapital stockreal rental

6、 price, R/Pcapital supplycapital demand (MPK)equilibrium rental rate8CHAPTER 18 InvestmentFactors that affect the rental priceFor the Cobb-Douglas production function, the MPK (and hence equilibrium R/P ) isThe equilibrium R/P would increase if:K (e.g., earthquake or war)L (e.g., pop. growth or immi

7、gration)A (technological improvement, or deregulation)9CHAPTER 18 InvestmentRental firms investment decisionsRental firms invest in new capital when the benefit of doing so exceeds the cost.The benefit (per unit capital): R/P, the income that rental firms earn from renting the unit of capital to pro

8、duction firms.10CHAPTER 18 InvestmentThe cost of capitalComponents of the cost of capital:interest cost: i PK, where PK = nominal price of capitaldepreciation cost: PK, where = rate of depreciationcapital loss: PK (a capital gain, PK 0, reduces cost of K )The total cost of capital is the sum of thes

9、e three parts:11CHAPTER 18 InvestmentThen, interest cost = depreciation cost = capital loss = total cost =The cost of capitalExample: car rental company (capital: cars)Suppose PK = $10,000, i = 0.10, = 0.20, and PK/PK = 0.06 Nominal cost of capital$1000$2000 $600$240012CHAPTER 18 InvestmentThe cost

10、of capitalFor simplicity, assume PK/PK = . Then, the nominal cost of capital equals PK(i + ) = PK(r + ) and the real cost of capital equalsThe real cost of capital depends positively on:the relative price of capitalthe real interest ratethe depreciation rate13CHAPTER 18 InvestmentThe rental firms pr

11、ofit rateA firms net investment depends on its profit rate:If profit rate 0, then increasing K is profitableIf profit rate 1, firms buy more capital to raise the market value of their firms.If q cost of capital, then profit rate is high, which drives up the stock market value of the firms, which imp

12、lies a high value of q. If MPK cost of capital, then firms are incurring losses, so their stock market values fall, so q is low. 22CHAPTER 18 InvestmentThe stock market and GDPReasons for a relationship between the stock market and GDP:1.A wave of pessimism about future profitability of capital woul

13、d:cause stock prices to fallcause Tobins q to fall shift the investment function downcause a negative aggregate demand shock23CHAPTER 18 InvestmentThe stock market and GDPReasons for a relationship between the stock market and GDP:2.A fall in stock prices would:reduce household wealthshift the consu

14、mption function downcause a negative aggregate demand shock24CHAPTER 18 InvestmentThe stock market and GDPReasons for a relationship between the stock market and GDP:3.A fall in stock prices might reflect bad news about technological progress and long-run economic growth. This implies that aggregate

15、 supply and full-employment output will be expanding more slowly than people had expected.The stock market and GDPPercent change from 1 year earlierPercent change from1 year earlierReal GDP (right scale)Stock prices (left scale)26CHAPTER 18 InvestmentAlternative views of the stock market: The Effici

16、ent Markets HypothesisEfficient Markets Hypothesis (EMH):The market price of a companys stock is the fully rational valuation of the company, given current information about the companys business prospects. Stock market is informationally efficient: each stock price reflects all available informatio

17、n about the stock. Implies that stock prices should follow a random walk (be unpredictable), and should only change as new information arrives. 27CHAPTER 18 InvestmentAlternative views of the stock market: Keyness “beauty contest”Idea based on newspaper beauty contest in which a reader wins a prize

18、if he/she picks the women most frequently selected by other readers as most beautiful. Keynes proposed that stock prices reflect peoples views about what other people think will happen to stock prices; the best investors could outguess mass psychology. Keynes believed stock prices reflect irrational

19、 waves of pessimism/optimism (“animal spirits”).28CHAPTER 18 InvestmentAlternative views of the stock market: EMH vs. Keyness beauty contestBoth views persist. There is evidence for the EMH and random-walk theory (see p.498). Yet, some stock market movements do not seem to rationally reflect new inf

20、ormation. 29CHAPTER 18 InvestmentFinancing constraintsNeoclassical theory assumes firms can borrow to buy capital whenever doing so is profitable.But some firms face financing constraints: limits on the amounts they can borrow (or otherwise raise in financial markets).A recession reduces current pro

21、fits. If future profits expected to be high, investment might be worthwhile. But if firm faces financing constraints and current profits are low, firm might be unable to obtain funds. 30CHAPTER 18 InvestmentResidential investmentThe flow of new residential investment, IH , depends on the relative pr

22、ice of housing PH /P. PH /P determined by supply and demand in the market for existing houses. 31CHAPTER 18 InvestmentHow residential investment is determinedKH Demand(a) The market for housingSupply and demand for houses determines the equilib. price of houses. SupplyThe equilibrium price of houses

23、 then determines residential investment:Stock of housing capital32CHAPTER 18 InvestmentHow residential investment is determinedKH DemandIHSupply(a) The market for housing(b) The supply of new housingSupplyStock of housing capitalFlow of residential investment33CHAPTER 18 InvestmentHow residential in

24、vestment responds to a fall in interest ratesKH DemandIHSupplySupplyStock of housing capitalFlow of residential investment(a) The market for housing(b) The supply of new housingU.S. Housing Prices and Housing Starts, 2000-2008Housing prices (left scale)Housing starts (right scale)35CHAPTER 18 Invest

25、mentInventory investmentInventory investment is only about 1% of GDP.Yet, in the typical recession, more than half of the fall in spending is due to a fall in inventory investment. 36CHAPTER 18 InvestmentThe Importance of Inventories37CHAPTER 18 InvestmentMotives for holding inventories1. production

26、 smoothingSales fluctuate, but many firms find it cheaper to produce at a steady rate. When sales production, inventories fall. 38CHAPTER 18 InvestmentMotives for holding inventories1. production smoothing2. inventories as a factor of productionInventories allow some firms to operate more efficientl

27、y. samples for retail sales purposesspare parts for when machines break down39CHAPTER 18 InvestmentMotives for holding inventories1. production smoothing2. inventories as a factor of production3. stock-out avoidanceTo prevent lost sales when demand is higher than expected. 40CHAPTER 18 InvestmentMot

28、ives for holding inventories1. production smoothing2. inventories as a factor of production3. stock-out avoidance4. work in processGoods not yet completed are counted in inventory. 41CHAPTER 18 InvestmentInventories, the real interest rate, and credit conditionsInventories and the real interest rateThe real interest rate is the opportunity cost of holding inventory (instead of, e.g., bonds)Example: High interest rates in the 1980s motivated many firms to a