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Wednesday, May 09, 2007

Stephen Gordon: Connecting Profits and Investment

Stephen Gordon at Worthwhile Canadian Initiative looks at the connection between profit and investment:

Connecting profits and investment, by Stephen Gordon: Paul Krugman's column on the apparent disconnect between high profits and low investment ... has a bit of déjà vu for Canadian readers: haven't we seen this before?

But more fundamentally, I don't see why we should expect that there should be a stable relationship between current profits and current investment. The current situation in the US is worrisome, but I don't think it qualifies as a puzzle I'm going to shamelessly steal Menzie Chinn's wonderful technique of graphing the movements of macro variables during the last three expansions: all variables are in logs, and scaled so that their values at the NBER reference cycle troughs are equal to zero. First up is US real investment expenditures on equipment and software (a reproduction of one of Menzie Chinn's graphs):
[...continue reading...]

    Posted by on Wednesday, May 9, 2007 at 07:38 PM in Economics | Permalink  TrackBack (0)  Comments (3)


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