Investment in the Euro Area: Why Has It Been Weak?

By Bergljot B Barkbu, Pelin Berkmen, Pavel Lukyantsau, Sergejs Saksonovs, Hanni Schoelermann

February 19, 2015

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Format: Chicago

Bergljot B Barkbu, Pelin Berkmen, Pavel Lukyantsau, Sergejs Saksonovs, and Hanni Schoelermann. Investment in the Euro Area: Why Has It Been Weak?, (USA: International Monetary Fund, 2015) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Investment across the euro area remains below its pre-crisis level. Its performance has been weaker than in most previous recessions and financial crises. This paper shows that a part of this weakness can be explained by output dynamics, particularly before the European sovereign debt crisis. The rest is explained by a high cost of capital, financial constraints, corporate leverage, and uncertainty. There is a considerable cross country heterogeneity in terms of both investment dymanics and its determinants. Based on the findings of this paper, investment is expected to pick up as the recovery strengthens and uncertainty declines, but persistent financial fragmentation and high corporate leverage in some countries will likely continue to weigh on investment.

Subject: Currencies, Economic theory, Financial crises, Financial institutions, Financial services, Money, Neoclassical theory, Stocks, Yield curve

Keywords: Aggregate investment equation, Area investment, Cash flow, Cost of capital, Credit rationing, Currencies, Equipment investment, Europe, Investment, Investment dynamics, Investment equation, Investment model, Investment pattern, Investment performance, Neoclassical theory, Performance in Europe, Stocks, WP, Yield curve

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/032
Stock No:

WPIEA2015032
ISBN:

9781498364805
ISSN:

1018-5941

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