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Investment in the Euro Area

Why Has It Been Weak?

Investment in the Euro Area by Bergljot Barkbu
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Investment across the euro area remains below its pre-crisis level. Its performance has been weaker than in most previous recessions and financial crises. This paper shows that a part of this weakness can be explained by output dynamics, particularly before the European sovereign debt crisis. The rest is explained by a high cost of capital, financial constraints, corporate leverage, and uncertainty. There is a considerable cross country heterogeneity in terms of both investment dymanics and its determinants. Based on the findings of this paper, investment is expected to pick up as the recovery strengthens and uncertainty declines, but persistent financial fragmentation and high corporate leverage in some countries will likely continue to weigh on investment.
International Monetary Fund; February 2015
31 pages; ISBN 9781484358542
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Title: Investment in the Euro Area
Author: Bergljot Barkbu; Pelin Berkmen; Pavel Lukyantsau; Sergejs Saksonovs; Hanni Schoelermann