Description

Investment equations are estimated for Chile, between 1986 and 2001, with the objective of building forecast and simulations of this variable. Investment behavior plays a crucial role in macroeconomic fluctuations in the short run, but also in capital and output grow in the long run. Hence, investment has been the subject of many articles and studies. Investment is treated in the literature in two ways. In the first one, which could be called the neoclassical approach, its main determinant is the user cost of capital. In the second one, which is called the Tobin Q model, investment is determined by the relation between the market value of capital and its replacement cost. The estimated equations are derived from these two models. The best out–of–sample forecasts are obtained for machine and equipment with the user cost model and for construction with the Q model. The methods of estimation used included two–stage least squares as well as error–correction techniques both linear and nonlinear like the one by Phillips and Loretan (1991).