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Lookup NU author(s): Dr Fabrizio Casalin
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We introduce financial frictions in the Tobin’s q model and estimate our model using aggregate data for the US. We find that financial frictions are more relevant than the industrial ones, and that financial market prices do not generate exogenous innovations to aggregate investment, thus explaining the poor empirical performance of Tobin’s q models. We then investigate whether the availability of external finance affects investment of non-financial corporations, finding that financial flows and investment display uncorrelated dynamics. The Tobin’s q seems a better theory of external finance than investment.
Author(s): Dia E, Casalin F
Publication type: Article
Publication status: Submitted
Journal: Journal of Economics and Business
Year: 2013
ISSN (print): 0022-2879
ISSN (electronic): 1538-4616
Publisher: Wiley-Blackwell Publishing, Inc.
Notes: Revised and re-submitted 2013
