Business Fixed Investment - Optimal Instrumental Variables Estimation - Tests of Predictive Ability

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This project consists of two part which are of roughly equal magnitude. The first part involves empirical research on business fixed investment. The aim here is to estimate and interpret dynamic models of investment. Models and solution techniques will be developed for analyzing the response of investment to movements in interest rates, wages, taxes, and productivity. The model for investment will be embedded in a larger macroeconomic model, to study the economy-wide links between investment on the one hand and business cycles and economics policy on the other. The second part of the project involves theoretical econometrics, with substantive empirical applications. The main effort here concerns optimal instrumental variables estimation in the presence of conditionally heteroskedastic disturbances. The author will develop and evaluate, via simulations, feasible estimators, applying the estimators to weekly data on exchange and interest rates. A related but smaller project will continue ongoing work on inference about out-of-sample predictions, by developing regression based tests and allowing for a broader class of measures of predictive ability.