In this seminar Luke Meehan will provide an overview of his recent paper, Japanese investment dynamics and the comparison of theoretical models. In this paper Luke suggests the variables used in modelling the aggregate investment - and in consequence the models themselves - have different effects at different points in time. This is intuitively satisfying given various narratives in the literature, amongst which: interest rates may have minimal impacts on investment at the zero-lower bound; financing constraints bind more tightly during a credit crunch; firms alter fixed investment to ‘cater’ to equity investors; uncertainty may only curtail behaviour during crises; oil prices are particularly important during ‘oil shocks’. To consider this suggestion Luke implements a Dynamic Model Averaging (DMA) technique from the forecasting literature, in which both variable coefficients and forecasting model constituent variables can change over time. DMA analysis of aggregated Japanese industrial data from 1965 to 2014 demonstrates considerable time-variation in the constitution of optimal forecasting models. Comparison of the DMA results with prior expectations of model utility highlights several interesting potential findings, including apparent indifference to cash-flow from financing or operations, the inverse cyclicality of the number of investment components, the time-consistency of aggregate Tobin’s average q, and the cyclicality of uncertainty. Luke further discusses the potential usefulness of this empiric technique, and considers issues of parameter selection and stability.

Luke Meehan is the Australia-Japan Business Cooperation Committee PhD Scholar in Applied Economics at Crawford School of Public Policy at Tthe Australian National University. His research focuses on the dynamics of private fixed investment in Japan, with particular reference to uncertainty (Meehan 2015a), industrial sectors and the yen (Meehan 2015b) and forecasting models (Meehan 2015c). He has been awarded a Japan Foundation fellowship and a JENESYS Future Leader fellowship and has visited at The University of Tokyo (2013-2014) and Keio University (2012). Prior to graduate studies Luke worked in financial journalism in Shanghai and Hong Kong and financial analysis in Mumbai and Sydney.

The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.