278
MACROECONOMICS
3.
Cash-flow effects on liquidity constrained borrowers
:
An important
source of lags arises from the gradual response of investment—business
investment as well as household investment in durables and housing—to
changes in monetary policy. Here, adjustment costs associated with chang-
ing the level of the relevant capital stock are responsible for the lag. However,
changes in interest rates also affect the incentive to postpone investment
when returns are uncertain. The largely irreversible nature of many invest-
ments means that there is an option value to waiting to invest in a world of
uncertainty.
11
When ...
Get Macroeconomics, 2nd Edition by Pearson now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
