DP12710 What Drives Aggregate Investment? Evidence from German Survey Data

Author(s):	Rüdiger Bachmann, Peter Zorn
Publication Date:	February 2018
Keyword(s):	aggregate demand shocks, investment determinants, investment dynamics, narrative approach, sentiment shocks, survey data
JEL(s):	D90, D91, E20, E22, E30, E32
Programme Areas:	Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=12710

The ifo Investment Survey asks firms in the German manufacturing sector about the importance of sales, technological factors, finance, return expectations, and macroeconomic policy for their investment activity in a given year. We show that these subjective investment determinants 1) capture economically what their labels suggest, and 2) have strong explanatory power for aggregate manufacturing investment growth fluctuations. In a second step, we use these determinants to identify aggregate demand and aggregate technology shocks and argue that the bulk of the variance of both aggregate manufacturing investment and output growth fluctuations (as much as approximately two thirds in both cases) is explained by aggregate demand shocks. Consistent with neoclassical views, however, technological factors are the most important investment determinant on average.