Macroeconomics. Part 3 Macroeconomics of Financial Markets. Lecture 8 Investment: basic concepts

Transcription

1 Macroeconomics Par 3 Macroeconomics of Financial Markes Lecure 8 Invesmen: basic conceps

2 Moivaion General equilibrium Ramsey and OLG models have very simple assumpions ha invesmen ino producion capial is whaever saved We had sudied consumpion and saving in more deph Now i s ime o consruc (parial equilibrium) invesmen heory While in general i is rue ha households owe firms, he naure of he decision o inves by he manager of he firm requires some rigorous exploraion Firms do no consider how much households are saving, hey inves only if hey expec cerain profis in he fuure As we will see, firms decisions heavily depend on he marke price of heir shares (and on he lending raes) Do no confuse real invesmen in quesion wih financial invesmen (i.e. rading financial asses we will discuss i laer) 2 Macroeconomics of Financial Markes

3 Invesmen heory: some early conribuions Jorgenson D. W. (963) Capial Theory and Invesmen Behaviour. American Economic Review, 53(2), pp Hall R. E., Jorgenson D. W. (967) Tax Policy and Invesmen Behaviour. American Economic Review, 57(3), pp Tobin J. (969) A General Equilibrium Approach o Moneary Policy. Journal of Money, Credi, and Banking,, pp Modigliani F., Miller M. H. (958) The Cos of Capial, Corporaion Finance and he Theory of Invesmen. American Economic Review, 48(June), pp Macroeconomics of Financial Markes

4 Desired sock of capial Sar from he simple microeconomic perspecive: invesmen is jus he firm s demand for he inpu (producive capial) The demand for he producive inpu is he soluion o profi maximizaion wih respec o quaniy of he inpu. I requires equaliy beween he marginal gain in revenue and marginal facor cos (inpu price in compeiive markes) The firm has opimal or desired capial, *, if he marginal revenue produc of capial, MRP, is equal o he renal price of capial, r : ( 8.) MRP (, X,..., X n) r, where X,..., r X n 0 - oher inpus (ha we omi laer on for simpliciy) Under sandard assumpions of decreasing marginal revenue and decreasing marginal produciviy we have he inpu demand 4 Macroeconomics of Financial Markes

5 User cos of capial The erm renal price of capial can be applied when firms ren capial If he firm uses is own capial, we should compare MRP wih he opporuniy cos, which is called user cos of capial p (8.2) r r p r marke ineres rae, p we reurn o parial equilibrium analysis and will assume ha firms ake (consan, for simpliciy) ineres rae as given δ rae of capial depreciaion, p marke price of capial goods, p p - capial gain or loss, which is due o possible change in price NOTE: renal price of capial and user cos of capial are in he same money value as MRP 5 Macroeconomics of Financial Markes

6 Acceleraor approach o invesmen Inroduce simple producion funcion Assume ha price of capial goods does no change: Then (8.2) simplifies o r rp, and Y A, 0, p cons MRP (8.) 8.3 MRP pmp r p * Y r pa Y p Y Le prices of capial and consumpion goods be he same: Then desired capial is 6 Macroeconomics of Financial Markes rp p p

7 Acceleraor approach o invesmen (8.4) This approach predics ha invesmen is proporional o he incremen in aggregae demand 8.3 (8.5) I I Y Y r Y r Y Y r r g Y or I Y r or an increase in invesmen is proporional o he acceleraion in oupu or share of invesmen in GDP is proporional o he growh rae of GDP For example, for r = 0. and α = 0.3 invesmen is hree imes more volaile han oupu 7 Macroeconomics of Financial Markes

8 ,00% 20,00% Invesmen (% GDP) GDP growh rae 5,00% 0,00% 5,00% 0,00% -5,00% Source: Federal Reserve Bank of S. Louis 8 Macroeconomics of Financial Markes

9 Shorfalls of basic conceps () Boh microeconomic concep of he desired sock of capial ha corresponds o some renal price or user cos of capial and acceleraor approach o invesmen have some shorfalls We firs deermine desired capial in saic opimizaion problem and hen le i jump o he new level if somehing (Y, r, ec.) changes Bu he sock of capial canno jump, i is essenially sluggish variable I is incredible o assume ha a firm can build anoher facory overnigh, while ineres rae can easily double overnigh Flexible acceleraor approach seemingly solve his problem 9 Macroeconomics of Financial Markes

10 Flexible acceleraor We can assume ha capial does no jump o he new desired level, bu adjuss gradually a a speed λ 8.6 I, 0 0 * 0 0 Macroeconomics of Financial Markes

11 Flexible acceleraor and adjusmen cos Bu wha deermines he speed of adjusmen λ? Consider following example as an illusraion min Cos c * 2 c 2 2 Adjusing capial he firm faces wo ypes of coss There is a loss in he profi nex period if capial is no opimal we can approximae profi loss by quadraic funcion I is expensive o adjus capial oo rapidly here is adjusmen cos we will sudy adjusmen cos in more deph in he nex lecure, now le i be quadraic as well Coefficiens c and c 2 describe relaive imporance of hese coss Macroeconomics of Financial Markes

12 Flexible acceleraor and adjusmen cos * min c c Cos The speed of adjusmen is higher he higher he loss from non-opimal capial he lower he loss from rapid adjusmen 2 Macroeconomics of Financial Markes 2 * 2 2 *,, c c c c c c c

13 Shorfalls of basic conceps (2) The second shorfall of basic conceps ha even flexible acceleraor approach does no solve is in he naure of invesmen decisions Invesors should be forward-looking Acceleraor approach deals wih he expeced oupu change (or desired capial in he nex period) Bu his is jus mechanics as we define invesmen as he change in capial The main problem is ha we sar from saic microeconomic seup of profi maximizaion Bu should invesors care only abou he curren profi? We need dynamic invesmen seup! 3 Macroeconomics of Financial Markes

14 Value of he firm The presen discouned value of he flow of profis, π, in he fuure deermines he value of he firm This definiion is similar o he concep of fundamenal or fare value of he sock ha we will discuss laer (8.6) V r, I Thus, raional firm should manage invesmen o maximize is value, V no jus maximize profi period by period Bu besides he choice of opimal invesmen here is anoher quesion: how firms arac invesmen? Or wha is he opimal capial srucure? Using heir own profis? Aracing new shareholders? Taking bank credi or issuing bonds? Is he choice beween inernal and exernal finance relevan? 4 Macroeconomics of Financial Markes

15 Modigliani-Miller Theorem If he oal profi does no depend on he way how firm aracs invesmen i.e. i does no depend on wheher firm issues new socks, E, or new bonds, B or he spli of profi beween sockholders and crediors does no affec is sum B E hen he capial srucure does no affec he value of he firm B E B E V V r r V ) ( 5 Macroeconomics of Financial Markes and hus he capial srucure is irrelevan for invesmen decisions ha maximize he value of he firm

16 Modigliani-Miller Theorem MM-Theorem implies, ha he dividend policy should be irrelevan for sakeholders If hey voe for high dividends, hen he firm have o rely upon credi (or bond issuance) o finance is invesmen. Then nex period profi will be paid o crediors, nex period dividends will be lower If hey voe for low dividends, hen he firm can re-inves is profi wihou heavy reliance on exernal finance. Thus, nex period dividends will be higher High dividends oday is high apparen income on socks High dividends omorrow should increase he sock price, which gives a capial gain MM-Theorem is jus a heorem (IF, THEN ) Are underling assumpions reasonable? 6 Macroeconomics of Financial Markes

17 Book and marke value of he firm (8.6) Definiion (8.6) considers he firm as an asse, which gives a sream of revenues I is essenially marke approach o evaluaion A he same ime, producive capial of he firm,, has is own book value I can be sold So, he invesor can make a decision by comparing V and V r, I If V >, hen i is reasonable o pay o acquire he capial and receive an asse ha is worh V Oherwise, here is no reason o creae he firm 7 Macroeconomics of Financial Markes

18 Tobin s q Following James Tobin (965) inroduce r I V Q, (8.7) Then we can consider invesmen as a funcion of Tobin s q 8 Macroeconomics of Financial Markes , 8.8 I Q I Q I Q I Q I I

19 I (Q) 0 Q 9 Macroeconomics of Financial Markes

20 Tobin s q (8.7) Q V Tobin s q incorporaes almos all deerminans of invesmen I depends on ineres rae, capial produciviy, fuure profis, ec. r And i seems appealing as we can easily, I calculae he marke value of he firm by aking he price of is socks find ou he book value (he firm has o declare i) If assumpions of MM-Theorem hold, hen q-heory of invesmen does no rely on a specific assumpion abou he capial srucure 20 Macroeconomics of Financial Markes

21 2 Macroeconomics of Financial Markes Источник: Бурда-Виплош

22 Source: Cohcrane, Discoun raes, lecure, Moscow, April 3, 20 USA, Macroeconomics of Financial Markes

23 Average Tobin s q (8.7) Q V The only problem wih (8.7) is ha i defines average variable (average Tobin s q) Bu microeconomics ells us ha opimal decisions should be based on comparing marginal gains and marginal losses And a a momen we jus say ha he firm should maximize is marke value, bu we did no solve his problem Sar wih he definiion of marginal Tonin s q, which relaes marginal gain dv and marginal cos d 23 Macroeconomics of Financial Markes

24 Marginal Tobin s q Define marginal Tobin s q as, (8.9) r MRP r I d d d dv q We can hink abou marginal Tobin s q as a fare price of he sock o Le he firm be a sock company, and le one sock correspond o (give ownership over) one uni of producive capial o Then MRP is a dividend per sock o Laer on we will see, ha marginal Tobin s q is jus he fundamenal price of he sock 24 Macroeconomics of Financial Markes

25 Reading Бурда-Виплош, приложение Дж. Брикли, Дж. Макконелл, Политика выплаты дивидендов (o be included in he nex quiz) 25 Macroeconomics of Financial Markes