Revisiting the accelerator principle in a world of uncertainty: Some empirical evidence

•With a panel of 11 OECD countries, 1970-2010, we analyse the determinants of investment;•Results suggest that oil prices and interest rates dampen investment;•Apart from the accelerator term, two proxies of economic activity are included, namely employment and investment in dwelling;•Rising investment in dwelling and employment favour firms' investment;•The HP filter is used to build the proxy for uncertainty, which is included in the model.

This contribution builds on the accelerator model to produce an investment function in which employment and households' investment are used as proxies for economic activity. This analysis identifies a positive correlation between corporate investment in fixed assets and households' investment in dwellings. Using a panel of 11 OECD countries for the period 1970-2010, the results also confirm that oil prices and interest rates may dampen firms' investment in fixed assets. An interesting feature of this investment function is that it accounts for uncertainty.