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Macro Seminar presented by Stephen J Terry (Boston University)

13 March 2019, 12:30 pm–2:00 pm

Macroeconomics seminar

'The Macro Impact of Short-Termism'

Event Information

Open to

UCL staff | UCL students

Availability

Yes

Organiser

Department of Economics

Location

B06, David Pearce Seminar Room
Drayton House
20 Gordon Street
London
WC1H 0AN
United Kingdom

About the Speaker

Stephen J Terry

Assistant Professor of Economics (Macro) at Boston University

Abstract:
R&D investment reduces current profits, so short-term pressure on managers to hit profit targets may distort R&D. In the data, firms just meeting Wall Street forecasts have lower R&D growth, while managers just missing receive lower pay. However, short-termist distortions might wash out in the aggregate, so to quantify their macro impact I build and estimate a growth model in which managers of heterogeneous firms choose R&D while facing firm-level shocks and profit targets derived from rational forecasts. Short-termism increases R&D volatility, lowering growth by 0.1% annually and output by 6% over 100 years, a sizable cost to the macroeconomy.

More about Stephen J Terry