What explains the lagged investment effect?

What explains the lagged investment effect?

by Janice C. Eberly

Book 16889 of NBER working paper series -- working paper

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"The best predictor of current investment at the firm level is lagged investment. This lagged-investment effect is empirically more important than the cash-flow and Q effects combined. We show that the specification of investment adjustment costs proposed by Christiano, Eichenbaum and Evans (2005) predicts the presence of a lagged-investment effect and that a generalized version of their model is consistent with the behavior of firm-level data from Compustat"--National Bureau of Economic Research web site.

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