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Testing for secular stagnation in investment rates using a Bayesian multilevel model

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  • Strauss, Ilan
  • Yang, Jangho

Abstract

Following Hansen (1939), we use a Bayesian multilevel (‘mixed effects’) model on a large firm-level panel to isolate the secular decline in autonomous investment demand and test for causes of it. Our firm-level regression shows that the investment slowdown is a long-standing feature across firms in 21 advanced economies since 1998 and continuing until the present (2020). Using a group-level (‘macro’) regression, we try to explain firms’ estimated secular decline in autonomous investment demand. We find that a shortage of relative investment opportunities – as per the original secular stagnation thesis – explains 40% of the variation in this secular slowdown.

Suggested Citation

  • Strauss, Ilan & Yang, Jangho, 2024. "Testing for secular stagnation in investment rates using a Bayesian multilevel model," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 351-364.
    • Handle: RePEc:eee:streco:v:70:y:2024:i:c:p:351-364
    DOI: 10.1016/j.strueco.2024.03.011
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    More about this item

    Keywords

    Secular stagnation; Investment rates; Firm-level data; Tobin’s Q; Bayesian econometrics;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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