october, 2018

02oct12:00 pm1:15 pmChristian WolfInvestment Stimulus: From Micro Elasticities to Macro Counterfactuals Event:Student Research Workshop


Event Details

Abstract (joint with Yann Koby):

What are the effects of temporary investment tax stimulus on aggregate investment expenditure? We show that, across a wide range of structural models, the response of investment to stimulus can be decomposed into two parts: a direct (partial equilibrium) effect and a general equilibrium feedback. The direct effect is consistently estimable as a cross-sectional investment elasticity net of time fixed effects. The general equilibrium step encapsulates aggregate price feedback to accommodate investment demand. We exploit restrictions coming from standard investment theory to show that the direct response to the tax stimulus is in fact partially informative about this feedback loop. The elasticity of investment supply, however, is necessarily un-identified. We thus leverage shock invariance of the general equilibrium step to discipline this elasticity using monetary shocks as a credible macro experiment. In our preferred specification, a cross-sectional elasticity of 16 per cent (Zwick and Mahon, 2017) translates to an aggregate investment stimulus of 11 per cent.


(Tuesday) 12:00 pm - 1:15 pm


Bendheim Center for Finance Room 101