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Investment in the Euro Area: Why Has It Been Weak?
Author:
Ms. Bergljot B Barkbu
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,
Pelin Berkmen null

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,
Pavel Lukyantsau
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Mr. Sergejs Saksonovs
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Hanni Schoelermann
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Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 032
Language:
English
Publication Date:
19 Feb 2015
DOI:
https://doi.org/10.5089/9781498364805.001
ISBN:
9781498364805
ISSN:
1018-5941
Pages:
30
Keywords:
WP; investment; cash flow; investment dynamics; cost of capital; credit rationing; aggregate investment equation; area investment; investment model; investment performance; investment pattern; performance in Europe; equipment investment; investment equation; Stocks; Neoclassical theory; Currencies; Yield curve; Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund