Research Associate Steven M. Fazzari and Benjamin Herzon assess the effect of a capital gains tax cut on firms' decisions to undertake new investment projects and the possible effect of such projects on economic growth and employment. Their analysis takes into account such factors as projects'...

A well-known but under-emphasized feature of the business cycle is that the flow of internal finance is highly procyclical. We argue that finance constraints lead firms to offset a large proportion of internal finance fluctuations through inventory (dis)investment. We construct three panels of...

Over the last decade, research has shown that financing constraints have an important impact on many aspects of firm behavior and aggregate fluctuations. This paper undertakes a critical comparison of the three main financing constraint hypotheses- -the bank lending, collateral, and internal...

We analyze the microfoundations for Keynesian aggregate demand effects by considering the link between aggregate demand and firm production decisions under monopolistic competition. Macroeconomic equilibrium is characterized in a simple graphical framework that facilitates comparison of several...

The price sensitivity of business investment spending is a central element in economic analysis. A substantial response of capital spending to its user cost, which combines interest, tax, and depreciation rates with relative prices, is critical to evaluating the effectiveness of monetary policy,...

Hyman Minsky's research emphasized the central role of finance in modern economies at a time when finance was not important in most mainstream macroeconomic research. But in the 1980s, mainstream research began to explore the role of finance in firm and consumer behavior. This paper examines the...

Studies of tax policy and corporate investment have been prominent in public finance and macroeconomic research. By integrating corporate income tax rates, investment tax credits, and the value of depreciation allowances into the quot;cost of capital,quot; economists have analyzed the effects of...

Most empirical models of investment rely on the assumption that firms are able to respond to prices set in centralized securities markets (through the quot;cost of capitalquot; or quot;qquot;). An alternative approach emphasizes the importance of cash flow as a determinant of investment...

The 2008 U.S. financial upheaval raises important questions about the sources of household consumption and debt growth, along with their macroeconomic effects. We argue that spending and financial preferences evolve as social norms interact with both cultural trends and institutional changes in...

Hyman Minsky's research emphasized the central role of finance in modern economies at a time when finance was not important in most mainstream macroeconomic research. But in the 1980s, mainstream research began to explore the role of finance in firm and consumer behavior. This paper examines the...