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Both Blanchard and Summers suggest that changes in investment behavior may be causing r* to increase. Blanchard: You can think of a number of reasons
Both Blanchard and Summers suggest that changes in investment behavior may be causing r* to increase. Blanchard: You can think of a number of reasons why investment would be higher. The first one is maybe we have entered a period of high TFP growth due to AI and so on...reshoring.....If we're serious about the fight against global warming, it's going to require high investment. Summers: With respect to investment, I think we will have more green investment and if we don't have more green investment, we will have more brown investment. I think the rate of obsolescence of the capital stock is increasing for resilience related reasons d) When they talk about investment, are Blanchard and Summers referring to the acquisition of real assets of financial assets? There is no need to explain. e) Why is an increase in I associated with an increase in r* even if we all know that I is a negative function of r? Explain. f) According to our model, why would an increase in future TFP stimulate investment in the present? g) Why is reshoring, discussed in problem set 3, associated with an increase in investment? h) When Summers associates an increase in obsolescence
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